What Happens If I Change Jobs and Overpay Social Security?
- According to the Social Security Administration, the Social Security Act was signed by President Franklin Delano Roosevelt in 1935, and taxes were collected for the first time in 1937. Initially, the Social Security Act provided benefits to retired workers only. However, subsequent modifications added survivors benefits, benefits for the spouse and children of retired workers, and disability benefits.
- There is an annual Social Security wage limit that applies each calendar year. This means that only wages up to that limit are subject to Social Security payroll tax deductions. As of 2011, the earnings limit that is subject to Social Security tax is $106,800. Therefore, for wages paid during 2011, your employer has to deduct Social Security tax from the first $106,800 you earn. After that, your employer should cease withholding Social Security tax from your paychecks for the rest of the year.
- If you have more than one job or change jobs during the year, each employer is required to deduct Social Security tax from your paychecks until you reach the annual limit at that job. Therefore, adding all of your jobs together, it is possible to have more Social Security tax withheld from your paychecks than you are required to pay. If this happens, you must wait until you file your annual tax return to receive credit for the extra amount you paid.
- When you file your annual tax return with the Internal Revenue Service, you can claim the extra Social Security tax that was deducted from your paychecks because you had more than one employer. There is a line to claim the credit in the "Payments" section of Form 1040. If you have underpaid any other taxes, the overpayment of Social Security tax will be applied to the total tax you owe. If you have not underpaid any other taxes, the excess Social Security tax will be added to any additional amounts you overpaid, and you will receive a refund for the total overpayment.
For help calculating the amount you overpaid, IRS Publication 505 has a section titled "Excess Social Security or Railroad Retirement Tax Withholding" that has detailed instructions and examples to help you calculate the correct amount. Note, however, that if you had only one employer that withheld too much Social Security tax, you cannot claim the excess tax on Form 1040. Instead, you must either have your employer make the correct adjustment to your paycheck or file Form 843, "Claim for Refund and Request for Abatement."