If an employee defers compensation into a 401(k) plan, are those deferrals subject to social security taxes?

When an employee defers compensation into a 401(k) plan, those deferrals are indeed subject to social security taxes. This is because contributions to a 401(k) are made with pre-tax income, which helps lower the individual's taxable income for federal income tax purposes, but this does not exempt the income from social security taxes. The rationale is that social security benefits are ultimately based on wages that are subject to these taxes, ensuring that the funding for the Social Security system remains stable.

To elaborate, while the contributions reduce the employee's current income tax liability, the amount of wages that are subject to social security taxes includes the total compensation before any 401(k) deferral. Hence, the deferred amounts still contribute to the employee's future social security benefits based on taxed income throughout their working years.

The other options relate to conditions that do not apply in this context; deferrals are treated uniformly concerning social security taxes without regard to specific limitations or age criteria.