How to withhold appropriate US social security tax How to withhold appropriate US social security tax

How to withhold appropriate US social security tax
31 Aug 2014

A few years ago in January I was focused on year-end when an employee called. He had reviewed his first payroll stub of the year and felt it was incorrect. He said: “My cheque is too low. You withheld social security tax from my pay cheque.”

My first thought was that he must have exceeded the social security wage base for the previous year and forgotten that the social security tax would begin again as it was the start of a new tax year. That was not his issue.

He was a new employee and this was his first payroll cheque issued from us. The employee explained he had received a payment from his previous employer the first week of January.

The payment exceeded the social security wage base for that year and the previous employer withheld the appropriate social security tax from the payment. For this reason, the employee insisted we had over-withheld and should refund the overage. The employee was only partially correct.

When calculating the social security tax to be withheld from an employee’s wages, each employer looks at the taxable social security wages it has paid to the employee and withholds up to the threshold for that year. Once an employer has paid the employee wages equaling the taxable wage base for the year, the employer will stop withholding social security from the employee’s wages for the rest of the year.

The regulations do state that employees are only subject to the social security tax up to the wage limit for the year. For example, the social security wage base for 2014 is $117,000 with a maximum social security tax of $7,254.

However, even though the employee is only subject to $7,254, each of the employee’s employers is required to continue to withhold until they have paid the employee in excess of the social security wage base for the year.

In my situation, the employee requested a refund of the withheld social security tax as he was aware of the limit set by the federal government. But the regulations state that an employer should withhold until it pays the employee in excess of the taxable wage base.

My employee may be eligible for a refund of the overage, but this would be handled at the time he files his tax return for the year, when he can receive a credit for any overpayment. He would need to discuss the issue with his tax preparer or contact the Internal Revenue Service for assistance. Now you can see why the employee was only partially correct.

 

By LaTisha O’Neal, CPP, who is payroll manager at Willbros Professional Services and a member of PAYTECH’s Board of Contributing Writers.


A few years ago in January I was focused on year-end when an employee called. He had reviewed his first payroll stub of the year and felt it was incorrect. He said: “My cheque is too low. You withheld social security tax from my pay cheque.”

My first thought was that he must have exceeded the social security wage base for the previous year and forgotten that the social security tax would begin again as it was the start of a new tax year. That was not his issue.

He was a new employee and this was his first payroll cheque issued from us. The employee explained he had received a payment from his previous employer the first week of January.

The payment exceeded the social security wage base for that year and the previous employer withheld the appropriate social security tax from the payment. For this reason, the employee insisted we had over-withheld and should refund the overage. The employee was only partially correct.

When calculating the social security tax to be withheld from an employee’s wages, each employer looks at the taxable social security wages it has paid to the employee and withholds up to the threshold for that year. Once an employer has paid the employee wages equaling the taxable wage base for the year, the employer will stop withholding social security from the employee’s wages for the rest of the year.

The regulations do state that employees are only subject to the social security tax up to the wage limit for the year. For example, the social security wage base for 2014 is $117,000 with a maximum social security tax of $7,254.

However, even though the employee is only subject to $7,254, each of the employee’s employers is required to continue to withhold until they have paid the employee in excess of the social security wage base for the year.

In my situation, the employee requested a refund of the withheld social security tax as he was aware of the limit set by the federal government. But the regulations state that an employer should withhold until it pays the employee in excess of the taxable wage base.

My employee may be eligible for a refund of the overage, but this would be handled at the time he files his tax return for the year, when he can receive a credit for any overpayment. He would need to discuss the issue with his tax preparer or contact the Internal Revenue Service for assistance. Now you can see why the employee was only partially correct.

 

By LaTisha O’Neal, CPP, who is payroll manager at Willbros Professional Services and a member of PAYTECH’s Board of Contributing Writers.