Can I Get a Tax Deduction for Overpaid Social Security?
Unlike income tax rates, Social Security withholding rates are the same for nearly all taxpayers: Unless you pull down a six-figure income, your employer withholds 4.2 percent of your earnings by law for Social Security taxes. The Social Security Administration bases your retirement benefits on the amount of money you earn while also setting a limit on those benefits. In turn, it limits the amount a worker may be taxed each year. Workers with excess FICA withholdings may reclaim those funds as a tax credit.
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Maximum Taxable Social Security Earnings
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You must pay the Medicare portion of FICA taxes regardless of your earnings, but you’re liable for Social Security taxes only on the first $106,800 you earn each year. The Internal Revenue Service requires your employer withhold 4.2 percent of your earnings until you reach that threshold. If you work for two employers and earn more than $106,800 in a year, though less than that with each employer, you might have overpaid your Social Security taxes. If your combined Social Security withholdings, as reported on your Form W-2s, exceed $4,485.60, you overpaid your Social Security taxes.
Married Couples
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If you’re married and file a joint return, your taxable Social Security earnings are still considered individually, as both spouses in dual-income marriages may qualify for their own retirement benefit, rather than a spouse’s benefit. Because of this, each spouse should consider their Social Security withholdings to determine overpayment individually. For example, if one spouse paid a total of $7,000 in Social Security taxes, and the other paid $1,200, the high-earning spouse may still claim an overpayment, regardless of the other spouse’s contributions.
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Claiming Overpayment
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A Social Security overpayment functions as a credit, reducing the amount of tax you owe and potentially becoming a refund, as opposed to being a deduction, which reduces your taxable income. To reclaim an overpayment, subtract $4,485.60 from your total withholding. Claim this amount on Line 69 of Form 1040 or Line 44 on Form 1040. Note “Social Security overpayment” in the space provided.
Processing Overpayments
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If you overpaid your Social Security taxes, the IRS first releases those funds from Social Security withholding and moves them to your general tax pool. If your income tax withholdings don’t cover your tax bill – or if you reported capital gains, investment income or self-employment income that you owe taxes on – the IRS uses the overpayment to cover these other taxes. If you don’t owe any additional taxes, the IRS returns the overpayment in the form of a refund check as if you overpaid income taxes throughout the year.
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