Switching jobs during a single calendar year — as many workers did during the Great Resignation — could mean you end up paying more in Social Security payroll taxes than you are required to. To get that money back, you’ll need to calculate the refund on your tax return.
Workers in the United States have Social Security taxes withheld from their paychecks (6.2% of gross earnings) on all wages up to $160,200 in 2023. That threshold, known as the “taxable maximum,” is up from $147,000 in 2022 and $142,800 in 2021, when the Great Resignation started to take hold.
The taxable maximum math can get tricky when you change jobs one or more times during the year, or if you have more than one job for the full year. That’s because employers withhold Social Security tax based on your current earnings — not what you might have earned at previous jobs or second jobs.
For example, suppose you are a high earner who passed the taxable maximum during the first half of the year, which in 2023 means your earned above $160,200 through the end of June. Then, during the second half of the year, you change jobs to a different employer. Because your new employer doesn’t know how much you earned before being hired, it will tax you at the usual 6.2% rate.
Just because you reached the Social Security tax threshold at one employer doesn’t mean you can request a second (or third) employer to stop withholding Social Security taxes from your current pay, according to a blog from Schwartz & Schwartz, a Massachusetts-based CPA firm.
“Each employer acts independently and assumes that they are your only employer in the year with regard to withholding Social Security taxes from your pay,” the blog said.
What this means is that you could end up paying twice as much or more in Social Security taxes during the course of the year. You might not even know how much you overpaid until you get your W-2’s for the tax year.
To recoup the money you overpaid, the first thing you need to do is look over those W-2s to find out how much was withheld in Social Security. When you file your tax return, you can claim a refund from the IRS for Social Security taxes withheld that exceeded the maximum amount, according to the Social Security Administration.
When you prepare your taxes and enter more than one W-2 wage statement, the tax software or tax professional should calculate the excess for you, MarketWatch reported. The details can be found on Schedule 3, which is then reported on line 31 of your Form 1040. If you prepare your taxes without the help of software or a tax pro, you’ll need to do the calculation manually. Overpaid Social Security taxes should help boost your overall refund — if you are due one.
Because many Americans switched jobs as part of the Great Resignation, refunds from overpaid Social Security taxes have been more prevalent this decade than in years past. Things should return to normal now that fewer people are quitting one job just to find another.
“People tend to think the higher refund is because of the new job, and think it’s going to happen all the time,” Kubey said. “And then I have to make sure to explain that unless they have a second job next year too, the refund may be less.”
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