The FICA tax applies to "wages ... received ... with respect to employment" as defined in 26 USC § 3121(a), (b). See 26 USC § 3101(a). Meanwhile, the program commonly referred to as Social Security takes into account "wages" as defined in 42 USC § 409 (which codifies § 209 of the Social Security Act, as amended ("SS Act")). These are separate statutes with independent definitions. The definitions are not the same and it is possible for income to be wages for the purpose of one of the statutes but not the other.
Elective deferrals to a plan commonly referred to as a 401(k) plan are unambiguously subject to FICA tax, with the usual maximums and exceptions. 26 USC § 3121(v)(1)(A).
However, the separate question of whether elective deferrals to a 401(k) plan (hereinafter, "elective deferrals") count as "wages" for Social Security purposes (hereinafter, "SS wages") is more interesting. As of December 18, 1989, the status of things was that:
- SS Act § 209(d) excluded elective deferrals from SS wages, but
- an undesignated paragraph near the end of SS Act § 209 stated that "Nothing in any of the foregoing provisions of this section (other than subsection (a) of this section) shall exclude" elective deferrals from SS wages.
Under this old state of affairs, elective deferrals were clearly included in SS wages because the undesignated paragraph prevented SS Act § 209(d) from having any effect to exclude elective deferrals from SS wages.
On December 19, 1989, Congress decided to make some changes to this statute. The Omnibus Budget Reconciliation Act of 1989, PL 101-239 ("OBRA89"), § 10208(d),
103 Stat 2106, 2479-81 renamed SS Act § 209(d) to SS Act § 209(a)(4) and also gave the previously mentioned undesignated paragraph an actual designation (namely, SS Act § 209(i)). However, Congress declined to change the text that read "other than subsection (a) of this section" in the previously undesignated paragraph. Since the exclusion of elective deferrals from SS wages was now found in subsection (a), the previously undesignated paragraph (now subsection (i)) was now ineffective to prevent elective deferrals from being excluded from wages.
Therefore, as of December 19, 1989, a plain reading of the statute leads to the conclusion that elective deferrals to a 401(k) plan are
excluded from SS wages. However, the Social Security Administration apparently takes the position that this effect of the OBRA89 was accidental and should be disregarded as a "scrivener's error". The Administration doesn't actually explicitly state this position in any public document, but it's the only explanation for the assertion in their policy manual that elective deferrals are included in SS wages.
RS 02505.240(B)(7). This position is fairly defensible because the heading of OBRA89 § 10208(d) reads "Clerical Amendments", which suggests that the changes were not supposed to cause a substantive change in the law.
This post does not discuss any plans other than plans commonly referred to as 401(k) plans.