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I'm thinking of taking on a contracting job next year, along with my current full time job, and I want to know how the two income streams would interact. When income reaches a certain level (~ $137k), employees stop paying the FICA tax.

I'm curious how the HR company/software that handles payroll "knows" how much income has been made. Does the payroll company simply reference the YTD pay on the current paystub? Or does it poll some kind of central records service to determine overall income (say from multiple income sources) and use this total income amount to decide whether or not to take out FICA?

If the former is true, can I reconcile my overpaid FICA at tax time and get a reimbursement?

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    Side note - Some states have other taxes with annual cap. For instance, California has CA SDI. They may also get overwithheld when you have multiple employers. You would then get the excess back using similar process on your state tax return.
    – void_ptr
    Commented Oct 1, 2020 at 21:23
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    "When income reaches a certain level (~ $137k), employees stop paying the FICA tax." This applies only to the Social Security portion of FICA, not the Medicare portion (which has no cap).
    – nanoman
    Commented Oct 2, 2020 at 3:37

2 Answers 2

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If you have one "employer" all year then the payroll processing system will stop collecting the employees portion when the yearly social security maximum is reached.

If you have multiple employers, either multiple at the same time, or non overlapping, then each employer has no knowledge of you other income. Each will continue to collect social security until the payroll they see has reached the annual maximum.

You have to wait until you file the next year to get the excess returned. It is a simple process, and the tax software tools will flag it as soon as you enter all your W-2 data.

One note about the number of employers. One year the company switched payroll processing companies, which then restarted the clock for all the employees late in the year. Everybody was mad because even those that exceed the limit before the switch, had the withholding restart.

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    If you want the money sooner, you could reduce your income tax withholding by the amount of the excess FICA withholding. On your tax return, the excess FICA withholding will be added to your income tax withholding, so it will even out. But the small amount is probably not worth the hassle of changing your withholding back and forth.
    – user102008
    Commented Oct 1, 2020 at 16:39
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As mhoran_psprep answered, any excess Social Security tax collected by your employers as a result of having multiple employers will be refunded at tax time. If you are using tax software, it will know what to do, but if you are doing taxes by yourself or you are curious, this is handled on Form 1040, Schedule 3, Line 11 (on the 2019 version of the form).

The Form 1040 instructions have this to say:

Line 11

Excess Social Security and Tier 1 RRTA Tax Withheld

If you, or your spouse if filing a joint return, had more than one employer for 2019 and total wages of more than $132,900, too much social security or tier 1 railroad retirement (RRTA) tax may have been withheld. You can take a credit on this line for the amount withheld in excess of $8,239.80. But if any one employer withheld more than $8,239.80, 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. Figure this amount separately for you and your spouse.

You can't claim a refund for excess tier 2 RRTA tax on Form 1040 or 1040-SR. Instead, use Form 843.

For more details, see Pub. 505.

The numbers quoted above are for 2019; for 2020, the maximum Social Security tax you would pay is 6.2% of $137,700, or $8,537.40.

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    Re maximum you would pay, it's actually 12.4%, with half "paid" by the employer and never showing up on your pay stub. Presumably the employer(s) would also be entitled to a refund of an overpayment, but how would that work? Or does the government just get to keep the excess?
    – jamesqf
    Commented Oct 2, 2020 at 17:06
  • @jamesqf: govt keeps the 'excess' employer half. More exactly, each half of SocSec is defined in 3101 and 3111 as 6.2% of pay up to the cap per employer, but the employee, only, gets a refund of tax on multi-employer pay exceeding the cap under 6413(c) and 31(b). But isn't that offtopic for 'personal' finance :-? Commented Oct 4, 2020 at 5:57

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