I spoke to a CPA about my 2015 tax situation. I had a job in 2015, but I also had stock trading losses that exceeded the salary that I received from the job. The CPA said that I traded enough that it can be considered a business, which means I can file a net operating loss that I can carry back to a few years ago when I had trading gains. He said that if I do that, then I will have no income for 2015, and I will get a refund for the taxes that were withheld in 2015.

I'd like to clarify exactly which taxes that were withheld I would get a refund on. (I have not decided to hire him yet as his fees are very high, and I don't want to pay him for additional time to ask this one question, so I'm asking it here.) Let's say hypothetically that I made $60K last year in salary from the job, and had $12K in federal income tax withheld, $3K in Social Security tax withheld, and $1K in Medicare tax withheld, and that I had $75K in trading losses. If I file an NOL, will the tax refund only include the $12K in federal income tax that was withheld, or will it also include the $4K in Social Security and Medicaid taxes that were withheld?


If you have a CPA working for you already - this is a question you should be asking that CPA.

Generally, NOL only affects the tax stemming from the Internal Revenue Code (Title 26 Subtitle A of the US Code). Social Security and Medicare, while based on income, are not "income tax", these are different taxes stemming from different laws.

Social Security and Medicare withheld from your salary are FICA taxes (Title 26 Subtitle C of the US Code). They're deducted at source and not on your tax return, so whatever changes you have in your taxable income on the tax return - FICA taxes are not affected by it.

Self Employment tax (Schedule SE) on your Schedule C earnings in the carry-back years will also not be affected, despite being defined in the IRC, because the basis of the tax is the self-employment income while the carryback reduces the AGI.

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