What are Excess Social Security Refunds?

What are “excess Social Security taxes” and how do some taxpayers get a refund of those taxes? Let’s take a look.

Background

If you look on Form 1040 under the “Payments” section, Line 71, you’ll see a line marked “Excess social security and tier 1 RRTA tax withheld.”

(RANDOM SIDE NOTE: The grammarian in me cringes to see that the IRS doesn’t capitalize “Social Security” on the Form 1040. It’s a proper name and should be capitalized. But I digress. Back to tax talk.)

What is this mysterious tax credit? The short answer is, it’s a refund for situations where you had too much Social Security tax withheld. This can happen when people work more than one job and their total income for the year goes over the Social Security wage base for that year.

Example 1

Let’s say Joe is a doctor. He works at a medical center and earns a salary of \$200,000 per year. He also works part-time in an ER and makes another \$20,000. When the medical center pays Joe, they’ll stop withholding Social Security tax once his pay reaches the wage base for the year (\$128,700 in 2018).

But the ER is not responsible for knowing what other sources of income Joe has. So they withhold Social Security taxes on his \$20,000 of pay. The Social Security tax is 6.2%, so the amount of tax withheld is \$1,240.

On Joe’s tax return, he can claim a credit for this \$1,240 of “excess Social Security withholding.”

Example 2

Let’s change the example slightly so we can have more fun playing with math.

Let’s say Joe makes \$120,000 at his main job and \$20,000 at his other job, for total wages of \$140,000. In this case, Joe’s wages from each job separately is below the SS wage base. So his main job will withhold Social Security tax on the full \$120,000, and his other job will withhold Social Security tax on the full \$20,000. So Joe had SS taxes withheld on a total of \$140,000 of wages, but the wage base for the year is \$128,700.

First we take \$140,000 minus \$128,700 = \$11,300. Joe had Social Security taxes withheld on an excess \$11,300 of wages. So his refund will be \$11,300 x .062 = \$700.60, which rounds up to \$701. Joe will claim a credit of \$701 for excess Social Security tax withheld.