Social Security Wage Base - Details

Details

The Congressional Budget Office considers the employer share of taxes to be passed on to employees in the form of lower wages that would otherwise be paid and counts them as part of the employees’ tax burden. Self-employed individuals pay the entire amount of applicable tax.

When an employee works for several different companies during a tax year, his or her Social Security deductions could exceed the cap, because each employer may not know how much the employee has already paid in Social Security tax in other jobs. The Social Security tax coverage will be calculated on his or her personal return and any excess is applied towards his or her Federal taxes. For example in 2010 an employee works two jobs (either concurrently or consecutively) paying $60,000 each. Since each employer calculates the social security taxes independently each employer will deduct 6.2% of the $60,000 employee’s salary, $3,720, for a grand total of $7,440 which exceeds the cap of $6,621.60 by $818.40. The over-payment would be entered on line 69 on the 1040 IRS Tax form and, assuming the employee didn’t owe any other Federal Taxes, refunded to the employee. The employers who each paid $3,720 will not get a refund since they are not aware that the employee overpaid in aggregate for the year and Social Security keeps the $818.40 overage. Even if they become aware of the overpayment there is no method to claim the overpayment.