Do 401(k) Deductions Affect Social Security Withholdings?

Review your pay stub for your 401(k) contributions and tax-withholding amounts.

Review your pay stub for your 401(k) contributions and tax-withholding amounts.

When you earn money, whether it’s wages, salaries, bonuses or self-employment income, that income is subject to both income taxes and payroll taxes, also known as FICA taxes. The FICA taxes include the Social Security tax and the Medicare tax, and each tax is withheld from your paycheck. However, the Social Security tax only applies on your income up to the Social Security earnings limit.

Tip

You can only reduce your income taxes, not your Social Security withholding, when you contribute to a 401(k).

401(k) Deduction Only Affects Income Taxes

Your 401(k) and Social Security are both sources of income in retirement. However, your contributions to your 401(k) plan won’t affect your Social Security withholding, regardless of whether you contribute to a traditional 401(k) plan or a Roth 401(k) plan. Contributions to a traditional 401(k) plan, however, will be excluded from your taxable income, so your income tax withholding will decrease because you’re expected to owe less in income taxes.

When you file your tax return, you’ll see on your Form W-2 that your wages don’t include your traditional 401(k) contributions because they are excluded from your taxable income. However, your Social Security withholding will still be based on your full income. As a result, you don’t claim your 401(k) contribution as a deduction on your taxes. For example, if your salary was $76,000 and you contributed $4,500 to your traditional 401(k), your taxable income will only show $71,500, but your Social Security wages will still show $76,000.

Employer Contributions to 401(k) Exempt From FICA

There is a small exception that is worth noting regarding 401(k) contributions and Social Security withholding. When your employer contributes to your 401(k) plan on your behalf, such as a safe harbor contribution or a matching contribution, those dollars aren’t subject to FICA tax withholding, including the Social Security tax. For example, if your employer contributes $1,000 to your 401(k) plan, it won’t increase the amount of your Social Security withholding.

2018 Tax Law Changes

FICA taxes and their applicability to 401(k) plan contributions and distributions haven't changed from 2017 to 2018. However, the amount of earned income subject to the Social Security portion of FICA taxes has gone up slightly to $128,400, which means the maximum Social Security tax paid in 2018 is $7,960.80 by each of the employer and employee, or $15,921.60 if you’re self-employed.

2017 Tax Filing

The Social Security income limit is just a little bit lower for 2017 at $127,200. As a result, the maximum Social Security tax due for the year is $7,886.40 for each of the employer and employee, or $15,772.80 if you’re self-employed.

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About the Author

Based in the Kansas City area, Mike specializes in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."

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