Did you overpay Social Security taxes?

By David Katzman

If you worked for more than one employer this year—or if you changed jobs—you may have paid too much in Social Security taxes. If so, you will need to recover the overpayment when you file your next federal income tax return.

In 2007, the maximum social security withholding is $6,045, which equals 6.2 percent of a wage base of $97,500. In 2006, the maximum withholding was $5,840, which was equal to 6.2 percent of a wage base of $94,200. Employers are required to withhold this tax until an employee reaches the maximum wage base. Generally, this is a math equation and your employer simply stops deducting when you reach the maximum. However, when you work two jobs or change jobs, you can overpay because employers are required to withhold the appropriate amount, without consideration for other sources of income.

For example, if you worked a main job in 2007 and made a total of $80,000, but you also worked a second evening job and made an additional $40,000, both employers would withhold Social Security taxes for the entire year because you did not exceed the wage base at either job. However, your total salary was $120,000, which was $22,500 above the wage base, so you overpaid by Social Security taxes by $1,395. One final note—employers must also withhold Medicare tax of 1.45 percent, which does not have a maximum wage base.

To get credit for your Social Security tax overpayment, you simply claim it on your federal income tax return, which means you must wait for your refund until after you file your return. The Internal Revenue Service (IRS) does not pay interest on excess Social Security withholding, so you are essentially providing the federal government with a temporary interest-free loan.

When will I get my check?

Even if you claim a refund for your excess Social Security withholding, you will not necessarily see a check. The excess amount will be added to your income tax payments, so you will receive a check only if your federal income tax bill is less than the amount of the total taxes you paid.

If you think you are owed a refund on excess Social Security taxes, a tax professional can help you determine the best approach for obtaining a refund or adjusting your estimated taxes to compensate.

David A. Katzman is a certified public accountant licensed to practice in the State of Florida and the Commonwealth of Massachusetts. He is also a certified financial planner and certified senior advisor. Please consult your tax advisor for details and assistance in applying this general information to your specific situation.