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how to avoid paying excess social security tax when two jobs removeps-groups@yahoo.com 05-30-2008
Posted by removeps-groups@yahoo.com on May 30, 2008, 5:51 pm
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 Let's say you have one job that during the year pays 204k. The social
security cap is 102k, so by the end of June your net salary paid from
the start of the year is 102k, and from July to December you pay no
social security tax, and neither does your employer. Is this right?
So the net social security tax paid for the year is 12648, which is
reasonable.

Now let's say you have two jobs that each pay 102k a year. By the end
of June is job has paid you 51k, which is below the 102k limit, so
they continue to withhold social security till December. As a result,
the taxpayer wlil have paid 12648 (6324 from each company) by the end
of the year and they can get a refund of 6324 for excess social
security tax paid. However, each company pays 6324. So the net
social security tax paid by the end of the year is 6324 (employee's
portion after claiming excess social security) + 6324 + 6324 -= 18972.

My reason for asking is that if the second company is your own S Corp
from which you draw a W2 salary, then you could end up paying more
social security tax.

By contrast, if your company was a sole proprietorship, then all your
earnings would be on Schedule C. Then Schedule SE will compute the
social security tax as zero as follows:

Line 6: Net earnings from self employment = 102000*0.9235
Line 7: Maximum amount subject to SS = 102000

Line 8a for 2008 will read

Total social security wages and tips (total of boxes 3 and 7 on
Form(s) W-2) and railroad retirement (tier 1) compensation. If
$102,000 or more, skip lines 8b through 10, and go to line 11

So Line 10, social security tax is zero. And if your W2 income from
the first job was less than 102k, say 100k, then only 2k of your self-
employment income would be subject to social security tax.

Line 11: Medicare = Line6*0.029 = 2731.71

So what's the solution to avoid paying too much social security tax?

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Posted by Mark Bole on May 30, 2008, 7:28 pm
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 removeps-groups@yahoo.com wrote:
[...]
> My reason for asking is that if the second company is your own S Corp
> from which you draw a W2 salary, then you could end up paying more
> social security tax.

> By contrast, if your company was a sole proprietorship, then all your
> earnings would be on Schedule C. Then Schedule SE will compute the
> social security tax as zero as follows:

> So what's the solution to avoid paying too much social security tax?

If I correctly understand the gist of your message, you want to know if
an employer can avoid (or get a credit) for excess of their share of Soc
Sec payroll tax paid on wages exceeding an employee's annual limit
($102K this year) due to two or more employers, especially if one of the
employers is actually another form of the employee (S-corp).

(Just as a thought exercise, how would you allocate such an employer
credit, anyway? Require the two employers to file information returns
with each other? Hardly, I think...)

A quick search of group archives confirms my hunch, namely: no, you
can't. The law only provides a credit for the employee in this situation.

There is also a passing reference to something called a "common
paymaster", sounds like affiliated companies can circumvent this problem
under some very specific and uncommon circumstances.

-Mark Bole

--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>

Posted by D. Stussy on May 30, 2008, 10:10 pm
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> removeps-groups@yahoo.com wrote:
> [...]
> > My reason for asking is that if the second company is your own S Corp
> > from which you draw a W2 salary, then you could end up paying more
> > social security tax.
>
> > By contrast, if your company was a sole proprietorship, then all your
> > earnings would be on Schedule C. Then Schedule SE will compute the
> > social security tax as zero as follows:
>
> > So what's the solution to avoid paying too much social security tax?
>
> If I correctly understand the gist of your message, you want to know if
> an employer can avoid (or get a credit) for excess of their share of Soc
> Sec payroll tax paid on wages exceeding an employee's annual limit
> ($102K this year) due to two or more employers, especially if one of the
> employers is actually another form of the employee (S-corp).
>
> (Just as a thought exercise, how would you allocate such an employer
> credit, anyway? Require the two employers to file information returns
> with each other? Hardly, I think...)
>
> A quick search of group archives confirms my hunch, namely: no, you
> can't. The law only provides a credit for the employee in this situation.
>
> There is also a passing reference to something called a "common
> paymaster", sounds like affiliated companies can circumvent this problem
> under some very specific and uncommon circumstances.

Correct. Both employers must pay up to the maximum, and tender a like
amount for the employee's share. Only the employee, by filing a 1040, can
get a refund of any excess due to having multiple employers. There is no
corresponding credit for the employer's shares.

--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>

Posted by rlsusenet@NOSPAMPUHLEEZschnapp on May 30, 2008, 11:59 pm
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D. Stussy wrote:

> Correct. Both employers must pay up to the maximum, and tender a like
> amount for the employee's share. Only the employee, by filing a 1040, can
> get a refund of any excess due to having multiple employers. There is no
> corresponding credit for the employer's shares.

This doesn't apply to a self-employment tax, though. If you're
self-employed and a non-corporate entity, any social security taxes
you've paid through an employer applies to your limits when calculating
the self-employment taxes.

Right?

--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>

Posted by Arthur Kamlet on May 31, 2008, 12:18 am
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>D. Stussy wrote:
>
>> Correct. Both employers must pay up to the maximum, and tender a like
>> amount for the employee's share. Only the employee, by filing a 1040, can
>> get a refund of any excess due to having multiple employers. There is no
>> corresponding credit for the employer's shares.
>
>This doesn't apply to a self-employment tax, though. If you're
>self-employed and a non-corporate entity, any social security taxes
>you've paid through an employer applies to your limits when calculating
>the self-employment taxes.
>
>Right?


Right. Just look at the back of a schedule SE.
--


ArtKamlet at a o l dot c o m Columbus OH K2PZH

--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>

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