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.
As discussed previously, the United States government utilizes a withholding system to maximize its tax collection efforts. Under the system, most employers1 are required to withhold a particular percentage of employee earnings to sufficiently fund its Social Security program.
Social Security withholding, for the most part, occurs at such a rate that an appropriate amount of income is withheld from each employee’s paychecks. High earning taxpayers, however, may be entitled to a tax credit when employers withhold too large of Social Security amounts. Line 69 of Form 1040 permits taxpayers (and/or their spouse if filing a joint return) with (1) more than one employer in 2012 and (2) total wages exceeding $110,100 to claim a credit for superfluous Social Security and/or Tier 1 railroad retirement (RRTA) withholdings2. Eligible taxpayers can take this credit for any amount withheld in excess of $4,624.
NOTE: If any one employer withheld more than $4,624, a taxpayer cannot claim this credit. Instead, the over-collecting employer should personally adjust the error. If the employer fails to do so, the taxpayer may file a claim for refund using Form 843.
1In some cases, the federal government and state and local governments do not have to withhold social security tax from their employees’ wages.
2Taxpayers cannot claim a refund for excess Tier 2 RRTA tax on Form 1040. Instead, use
Form 843.
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