Posted August 2019
If you are switching jobs or working two jobs as an employee and your total wages for the calendar year will exceed the social security wage base ($132,900 in 2019), you may be overpaying social security tax. Unfortunately, you cannot stop the withholding. However, you will get a credit on your next tax return for any excess withheld.
Each employer is obligated to withhold social security taxes from your wages. The total they both can withhold may exceed the maximum amount of tax that can be imposed for the year. This amount is $8,239.80 with a 6.20% rate in effect for 2019 and based on the $132,900 wage. If your total withholding is more than that amount, you can recover the excess by claiming a credit for a payment of taxes on your individual tax return for the year.
Example:
E is an employee of ABC, Inc. from January through April 2019, and earns $70,000 during that period. From May through the end of the year, E works for XYZ, Inc. and earns $65,000. ABC withholds $4,340 in social security taxes ($70,000 × 6.20%), and XYZ withholds $4,030 ($65,000 × 6.20%), for a total $8,370 withheld. This withholding is $130.20 more than the $8,239.80 maximum amount for 2019. On E’s 2019 individual tax return, E will be entitled to claim a credit for a payment of taxes of $130.20.
Although you can recover the excess amount withheld when you file your tax return for the year, as described above, you will not get the benefit of the credit until you file the return that is due in April of the following year. IRS is not required to pay you interest on this amount, so in effect you will have made an interest-free loan to the IRS. If you are separately making estimated tax payments for the year, you may be able to avoid this loss by reducing your estimated payments to reflect the over-withholding. Essentially, you may be able to turn the over-withholding into an estimated payment.
Note that every employer must also withhold a Medicare tax of 1.45% on all wages. Since there is no ceiling on this tax, as there is for the social security tax, you are not entitled to any refund from the amounts your employers withhold.
Please contact us if you would like to discuss this topic further or if you need assistance in working out a revised estimated tax payment schedule due to excess social security tax withholding.
It is not uncommon to find yourself working for more than one company in a given tax year. Employers are obligated to withhold social security taxes from your wages, regardless of the amount withheld by a previous employer. This will often lead to the amount that is withheld to exceed the maximum amount of tax that can be imposed for the year. $7,254.00 is the maximum amount the IRS can withhold from wages in 2014 (6.20%, the rate in effect for 2014
multiplied by $117,000 wage base).. If this total is exceeded when the withholding from two or more employers exceeds the limit, you can recover this income by claiming a credit for a payment of taxes on your tax return for the year. If any one employer withheld too much social security due to an error, you cannot claim the excess as a credit against your income tax. Your employer should make an adjustment of the excess for you. If the employer does not make an adjustment, you can use IRS Form 843Claim
for Refund and Request for Abatement, to claim a refund. The following example uses 2013 numbers $7,049.40 Maximum based on 6.2% of $113,700 base Example: Tom drew wages from of Acme Widget, Inc. from January through March, 2013, and earns $65,000 during that period. From April through the end of the year he works for Best Widgets, Inc. and earns $60,000 during that period. Acme Widget, Inc. withholds $4,030 in social security taxes from
the wages it pays Tom ($65,000 × 6.20%), and Best Widgets, Inc. withholds $3,720 ($60,000 × 6.20%) in social security taxes from the wages it pays him. When the calendar year ends, a total of $7,750 withheld, which is $700.60 above the $7.049.40 maximum amount for 2013. On his 2013 individual tax return, Tom will be entitled to (and should claim) a credit for a payment of taxes of $700.60. Although you can recover any over withholding of Social Security taxes when you file your year end
return, the IRS will have had has use of your money (interest free) for several months. They’re not required to pay you interest on the over withholding and that’s money lost. If you are making separate estimated tax payments throughout the year, it is possible to offset the loss by adjusting the amount that is sent in quarterly. Essentially, you may be able to use the over withholding as an estimated tax payment. Table from IRS website 2013 Maximum Tax rate Maximum $113,700 6.2% $7,049.40 $113,700 6.2% $7,049.40 $84,300 4.4% $3,709.20 Joint returns. If you are filing a joint return, you and your spouse must figure any excess social security or tier 1 RRTA separately. All wages are subject to Medicare tax withholding. All in all The tax Liability from year to year may sound overwhelming, but garvey & garvey, llc CPAs can easily assist business owners and employees with establishing a method that is appropriate
for them so that there are no unwelcome surprises when the tax year ends.Where to claim credit for excess social security withholding
Table 3-2. Maximum
Social Security and RRTA Withholding for 2013
Type of tax
wages
subject
to tax
tax to be
withheldSocial security
Tier 1 RRTA
Tier 2 RRTA
Note.