Discussion:Excess Social Security Tax
From TaxAlmanac
Discussion Forum Index --> Advanced Tax Questions --> Excess Social Security Tax
Discussion Forum Index --> Tax Questions --> Excess Social Security Tax
| 27 October 2009 | |
| I have a question regarding excess social security tax withheld. Taxpayer has two W-2s. The first W-2 is 60000 a year. All taxes are withheld correctly from this employer. Taxpayer also is a shareholder in a S-Corp. 2009 Projected W-2 Wages from S-Corp is 196000, and K-1 income is around 100000. The point of the 196000 is to max the SEP contribution for 2009. How is the social security tax accounted for? Once he reaches 106800 in 2009, should he stop withholding social security from his S-Corp paycheck, and therefore also stop the employers matching portion of social security? I don't see a credit for the employer to reclaim the social security taxes paid. In most situations the employer would not know about this overpayment anyways. | |
| October 27, 2009 | |
| The employee will be entitled to a refund for excess social security taxes withheld. But each employer has to pay its share on wages it pays up to the wage base; employers don't get a discount for hiring someone with a second job.
You'll have to weigh whether the extra IRA assets are worth paying employer FICA on an extra $60,000. | |
| 27 October 2009 | |
| if the employer employs himself, can he adjust social security wages to compensate for the social security wagebase limit? | |
| 27 October 2009 | |
| he can adjust wages for reasonable compensation - just have him do less work or hire someone else to do part of the work. | |
| 27 October 2009 | |
| i don't want to adjust wages because I want to be able to maximize the sep contribution. the overall tax savings is greater with the sep contribution. I figured it would be around 17,000 in savings with a 49,000 contribution | |
| 27 October 2009 | |
| you are, of course, taking into consideration the elective deferrals at his first job, correct? | |
| 27 October 2009 | |
| then the savings is reduced by the company's portion of the 'wasted' excess FICA - for example, on 60,000 3,720 is wasted | |
Death&Taxes (talk|edits) said: | 27 October 2009 |
| Or to be fair, 3720 times your tax bracket, since the amount will reduce the S Corp profit. | |
Death&Taxes (talk|edits) said: | 27 October 2009 |
| Ooops, said that wrong, thank goodness Harry is out getting a PBR. | |
| October 28, 2009 | |
| A bit late now, but this is where proper entity planning BEFOREHAND pays off big. Making that S an LLC originally would have prevented the company from doing a thing with SS tax, it would have all gone back to the 1040 and he would have only paid up to the limits. Too late now. | |
| 28 October 2009 | |
| So if we reduced the savings to 13280 to account for the wasted FICA, then it would still be beneficial to do the max sep contribution. However, I'm still not sure if He can stop withholding social security for himself and stop the matching portion based on the fact that he will hit 106800 from the S-corp W-2 and the first W-2. Thanks for the discussion. | |
| 28 October 2009 | |
| This was already discussed above but maybe not clear to you.
No he cannot adjust or stop his own withholding of social security tax on the S Corp payroll. The S Corp cannot adjust or stop its employer match for the S Corp payroll. The TP will get a credit on his own 1040 for the excess social security withholding tax he paid over the yearly maximum between the two W-2's. The excess employer match paid by the S Corp will not be refundable but will be a business deduction that flows to the K-1. | |
Death&Taxes (talk|edits) said: | 28 October 2009 |
| Kathi writes: "The excess employer match paid by the S Corp will not be refundable but will be a business deduction that flows to the K-1." Well said! And to make it clear, this will not be a separate line item on the K-1 but part of the gain or loss on Line 1. Your client will have to trust you.
And you do realize that the SEP contribution is a deduction in the S-Corp, not at the individual level? I have seen this principle said wrong by several posters on this board. | |
| 29 October 2009 | |
| When an employee reaches the max FICA, no additional FICA has to be w/h. However there is no cut off for medicare tax. The entire wage is subject to it.
When the 1040 is filed, the excess fica w/h from both W-2s will first be credited to fit and then the overpayment will be refunded. Each employer is required to w/h FICA up to the maximum allowed. | |
