How does the Social Security Wage Base apply to employers?

Question

This is a hypothetical question, but let's say a person has two W-2 positions at two different companies, where they make $60,000/year each. The Social Security Wage Base for 2014 is $117,000. So the Social Security tax was paid on an extra $3000. The employee could get this refunded on their tax return (presumably). But what about the employers' share of the Social Security tax? They would have no way to know this was happening. Does the federal government figure it out and refund them?

Answer 1

The FICA creates two different taxes: taxes on the employees and taxes on the employers. Taxes on the employees are codified under 26 U.S. Code Chapter 21 Subchapter A. For the employers - same chapter, subchapter B.

Accidentally (or not) the tax rate is the same: 6.2% of the wages paid (up to the Wage Base limitation).

The limits are the same, however there's a subtle difference: Subchapter A (Sec. 3101) places the limits on the wages received by the employee, whereas Subchapter B (Sec. 3111) places the limits on the wages paid by the employer.

Excerpt from Sec. 3101:

In addition to other taxes, there is hereby imposed on the income of every individual a tax equal to the following percentages of the wages (as defined in section 3121 (a)) received by him with respect to employment (as defined in section 3121 (b))—

Excerpt from Sec. 3111:

In addition to other taxes, there is hereby imposed on every employer an excise tax, with respect to having individuals in his employ, equal to the following percentages of the wages (as defined in section 3121 (a)) paid by him with respect to employment (as defined in section 3121 (b))—

So the bottom line is that when an individual exceeds the FICA limits on his wages because of multiple employers, each of the employers separately - doesn't. Because these are different taxes and different limits, even if they look very similar.

Answer 2

No, the Federal Government does not figure out anything and the employers are not refunded the "excess" tax that the employers paid. The employer's share of the Social Security tax is on the activity of the employer in paying the wages, and that activity occurred regardless of any other employment of the wage earner elsewhere.

If an employee's gross income from an employer exceeds the Social Security wage base for that year, neither the employee nor the employer has to pay Social Security tax on the excess. Medicare taxes continue to be paid by both on the income above the Social Security wage base since there is no wage base for Medicare taxes. In a new twist, starting in 2013, additional Medicare taxes are withheld on the wages of employees making more than $200K but this is a tax on employees only; there is no corresponding employer's share of the extra Medicare taxes.

Answer 3

Those interested in self-employment tax when you also have W-2 income can find the "answer" by looking through the fairly simple long form of the IRS Self-Employment Tax form (https://www.irs.gov/pub/irs-pdf/f1040sse.pdf)

It's a fairly simple form - it seems half of it is asking about farm or clergy income!

You'll see that you only owe self-employment tax (the 12.4% part that is equivalent to 2x FICA, employer and employee) on self-employment income that when added to W-2 income does not exceed the annual cap. For example, if the annual cap is$118,500 (2016) and you have $80,000 of W-2 income and $50,000 of self-employment income then you only owe (the 12.4% portion of) self-employment tax on $118,500 - $80,000 = $38,500, not the entire $50,000.