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12459: Recovering Excess Social Security Withholdings


1040 Individual Generally

A taxpayer has paid in more social security tax than he should have. How is that recovered? Does the software provide a worksheet of any kind?
 

According to Publication 505, Tax Withholding and Estimated Tax, under some conditions a taxpayer may be able to take a credit on a tax return for excess social security or railroad retirement tax withheld by an employer. This credit is subtracted from the taxpayer's total tax. Because the credit is refundable, the taxpayer should file a return and claim the credit, even if no tax is owed.

Two or more employers

A taxpayer with two or more employers may have had withheld social security or Tier 1 railroad retirement tax that exceeds the annual maximum. The taxpayer may be able to claim the excess as a credit against income tax on a return. Worksheets are available in Publication 17.

Employer's error

If any one employer withheld too much social security or Tier 1 RRTA tax, the taxpayer cannot take the excess as a credit against income tax. If the employer refuses to refund the over-collection, the taxpayer can file a claim for refund using Form 843, Claim for Refund and Request for Abatement.

Joint Return

In a joint return, you cannot figure excess withholding by adding the taxpayer and spouse social security or Tier 1 RRTA withholding. Figure the withholding separately for the taxpayer and spouse to determine if either has excess withholding. If each taxpayer only has one employer, the Wks Excess SS will not calculate, even if the total withholding on the return exceeds the annual maximum. Per the 1040 Instructions,

"You can take a credit on this line for the amount withheld in excess of $8,537.40. But if any one employer withheld more than $8,537.40, you can't claim the excess on your return. The employer should adjust the tax for you. If the employer doesn't adjust the overcollection, you can file a claim for refund using Form 843."

Recovery of Excess Social Security and Tier 1 RRTA withholding

In excess of the annual maximum--

  • The software calculates social security and Tier 1 withholding that exceeds the annual maximum, but only if there are two or more employers for that taxpayer.
  • The calculated amount is the difference (with an uncollected tax adjustment) between the total withheld and the maximum amount. It does not consider the tax rate on individual W-2s.
  • In the software, look for worksheet Wks Excess SS in view mode to confirm the calculation.
    • Note: This worksheet is only produced if there are two or more Forms W-2 for the taxpayer. See Joint Return above for more information. 
  • The calculated amount appears as a credit on Schedule 3, line 10 and flows to Form 1040, line 31.
    • An override is available on screen 5. If the override is used, the worksheet will not produce. 
  • Note 208 is produced.

In excess of the tax rate--

  • A NOTES page is produced if the amount entered on a W2 screen, box 4 does not reflect the correct tax rate. An excess attributable to an employer's tax rate cannot be claimed as a credit on the taxpayer's 1040. Generally, the taxpayer must try to correct the withholding with the employer, before submitting Form 843.

Recovery of Excess Tier 2 RRTA withholding

Use Form 843 to claim a refund of excess Tier 2 RRTA withholding. See Excess Social Security or Railroad Retirement Tax Withholding in Publication 17 for more information.


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