How to Recover Excess Social Security Deductions

How to Recover Excess Social Security Deductions
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Your employer must deduct Social Security tax from your wages, up to the yearly amount required by federal law. If you changed jobs and your wages from all your employers exceeded the annual wage limit for Social Security tax, you probably paid too much tax. This may happen if your last employer was unaware of how much your previous employer withheld from your paychecks. To recover the excess amount, use the method that applies to your situation.

Minimum Excess Amount

According to the IRS, the Social Security tax rate for employees in ​2021​ is ​6.2 percent​, up to ​$142,800​ for the year. Therefore, your excess deductions in ​2021​ should not be less than ​$8,853.60​, which is ​$142,800​ multiplied by ​0.062​.

An exception to this situation would be if your employer deducted Social Security tax from your wages at more than ​6.2 percent​. In this case, you would overpay Social Security tax regardless of your total earnings for the year. This situation is generally uncommon because many employers use payroll software to calculate paycheck taxes.

Accounting for Multiple Employers

You can claim a credit against your income tax on your federal tax return if the overpayment happened because you had multiple employers. The excess amount would go on the appropriate line of IRS Form 1040.

For example, on ​2021’s​ Form 1040, this information goes on ​line 11​ of Schedule 3. To determine the excess amount, add the total Social Security tax withheld from your wages by each of your employers and then deduct the required limit for the year, which Intuit TurboTax reports is ​$8,853.60​ for 2021.

Just One Employer

If the same employer deducted too much Social Security tax, contact them and ask them to fix the issue. They should refund you the overpayment and adjust your W-2 form so it reflects the correct amount of Social Security wages and tax for the year.

If your employer doesn't honor your request, you can claim a refund from the Internal Revenue Service by completing Form 843, attaching your W-2 and mailing the documents to the agency. In this case, don't put the excess amount on your 1040 when completing your tax return. Since you already applied for a credit on Form 843, putting the excess amount on your 1040 could result in penalties and interest.

Joint Tax Return

If you're married and filing a joint return, similar rules apply to claiming excess deductions when there are one or multiple employers. However, when figuring the amount to be refunded on Form 843, don't add your Social Security tax payments to your spouse’s. One or both of you must have individually paid more than the required amount to have excess deductions. To figure whether either of you has excess deductions, calculate what you each paid separately.

Tier 1 Railroad Retirement Tax

Railroad employees pay Tier I railroad retirement tax instead of Social Security tax. As of 2021, these two taxes have the same tax rates and annual wage limits. The procedures for claiming excess deductions are also similar.