Tax Treatment of Overpaid Social Security
Social Security tax is calculated at the rate of 0.062 of total taxable wages. Unlike Medicare tax, which has no limit to the amount of wages that can be taxed, only wages up to an annual maximum of $106,800 can be taxed for Social Security. This wage limit is effective for 2009 and 2010. Check the Internal Revenue Service website for Social Security wage thresholds after 2010.
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How Excess Social Security Tax is Withheld
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Employers do not consider how much Social Security tax was withheld by other employers. Employers are responsible for withholding Social Security tax on the wages they pay you up to the wage limit of $106,800. Since there is no communication between employers, if you changed jobs or work for more than one employer at a time, review how much Social Security tax was withheld and recoup the excess withholding.
Calculate Social Security Tax
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Examine your most recent pay stub, or Form W-2 if reviewing at year end. Determine the total wages subject to Social Security tax. Multiply those wages by 0.062 to calculate the appropriate amount of Social Security tax that should have been withheld from your paycheck. Remember, if your wages for the year are greater than $106,800, Social Security tax of $6,621.60 will be withheld ($106,800 times 0.062).
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Change in Employer
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If you switched jobs during the year, it is possible that too much Social Security tax was withheld. For example, if you earned $75,000 from your first job and $50,000 from your second job, excess Social Security tax was likely withheld from your paycheck. Verify the amount that was withheld by each employer by multiplying your total wages by 0.062. Since in this example, total wages for the year were $125,000, total Social Security tax withheld was likely $7,750 ($125,000 times 0.062), which is $1,128.40 greater than the lawful maximum.
Recoup the Excess Withholding
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If too much Social Security tax was withheld, you can report the excess on line 69 of Form 1040. Excess Social Security tax withheld is reported as a payment made for federal withholding taxes. In other words, it reduces the amount of income tax due or increases the amount of your refund.
One Employer Withheld Excess Social Security
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In the event that you had only one employer and that employer withheld Social Security tax in excess of $6,621.60, do not include the excess on line 69 of Form 1040. Instead, ask the employer to correct the withholdings for you. The employer will accomplish this through amended payroll tax returns and an adjustment to your paycheck. If the employer does not correct the withholdings for you, complete Form 843 and request a refund of the excess tax withheld.
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