Does Social Security Withholding Figure Into My Tax Return?
Some earners may claim an excess payroll tax credit from the IRS.
dollars image by Zbigniew Nowak from Fotolia.com
The Social Security retirement and disability programs require all workers to pay in to the system through payroll taxes. Employers share in the burden, paying 6.2 percent of a worker's gross salary to the IRS as of 2012 -- while the employee's share is 4.2 percent. Self-employed individuals pay both the employer and employee share. Although the IRS collects payroll tax on behalf of Social Security, for most people the agency keeps the subject of payroll taxes off of the annual income tax return.
Deductions and Exemptions
Wage Base Limit
The wage base limit in 2012 was set at the first $110,100 of gross income. You pay taxes only on earnings up to this amount; if you earn more,
the portion above $110,100 is exempt from Social Security tax. The payroll tax is limited in this way because benefits are limited; everyone is subject to a maximum monthly retirement or disability benefit, no matter how much they earn. In some cases, however, workers may find themselves paying Social Security tax above the wage base limit -- in which case, they have some calculating to do on their Form 1040s.
Two or More Employers
If you change jobs or have more than two employers during the year, you may find that you're having Social Security tax withheld when you should be exempt. The law does not require employers to share your salary information; therefore, a second or subsequent employer may continue to withhold payroll tax even as you earn past the total wage base limit of $110,100 a year.
Credit for Over-WithholdingSource: finance.zacks.com