How do employers withhold SS taxes when over wage limit?
How do employers withhold SS taxes when over wage limit?
I'll be going over the wage base next year and I was wondering, for nerdy budgeting purposes, how employers withhold Social Security taxes for employees with salaries over the wage base.
To take an easy example, suppose the wage base is 145k next year and an employee makes 290k (2x the wage base). Do employers:
1. Withhold the whole 6.2% until the end of June (half the year) and then stop entirely.
2. Withhold no more than max wage base for EACH pay period, in this case, 3.1% of the employee's pay.
I strongly assume it's #1, but just wanted to check. Thanks!
To take an easy example, suppose the wage base is 145k next year and an employee makes 290k (2x the wage base). Do employers:
1. Withhold the whole 6.2% until the end of June (half the year) and then stop entirely.
2. Withhold no more than max wage base for EACH pay period, in this case, 3.1% of the employee's pay.
I strongly assume it's #1, but just wanted to check. Thanks!
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Re: How do employers withhold SS taxes when over wage limit?
I've wondered before what happens to employer contrib if said employee earns $145k at another job, too. Curious how that works.
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Re: How do employers withhold SS taxes when over wage limit?
#1 in my very limited experience (only 2020 and 2021, so far).
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Re: How do employers withhold SS taxes when over wage limit?
Employer #2 takes out SS taxes without consideration for what happened at employer #1. So if employee was over the wage limit at job #1, then the employee will be owed a refund for the SS taxes paid at job #2. Employee might be able to adjust income tax withholding to balance things out.dukeblue219 wrote: ↑Fri Sep 24, 2021 1:35 pm I've wondered before what happens to employer contrib if said employee earns $145k at another job, too. Curious how that works.
There is no wage limit or cap on employER contributions. Employer #2 would still owe 6.2% SS taxes on employee's income earned at job #2.
Last edited by tashnewbie on Fri Sep 24, 2021 1:56 pm, edited 2 times in total.
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Re: How do employers withhold SS taxes when over wage limit?
My experience was that OASDI (Social Security) would peter out when hitting the wage limit. So I'd get a "raise" at some point in the year if/when this was the case.gt4715b wrote: ↑Fri Sep 24, 2021 1:31 pm I'll be going over the wage base next year and I was wondering, for nerdy budgeting purposes, how employers withhold Social Security taxes for employees with salaries over the wage base.
To take an easy example, suppose the wage base is 145k next year and an employee makes 290k (2x the wage base). Do employers:
1. Withhold the whole 6.2% until the end of June (half the year) and then stop entirely.
2. Withhold no more than max wage base for EACH pay period, in this case, 3.1% of the employee's pay.
I strongly assume it's #1, but just wanted to check. Thanks!
Probably more complicated if one has multiple payroll jobs.
Re: How do employers withhold SS taxes when over wage limit?
The individual reconciles at tax time.dukeblue219 wrote: ↑Fri Sep 24, 2021 1:35 pm I've wondered before what happens to employer contrib if said employee earns $145k at another job, too. Curious how that works.
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Re: How do employers withhold SS taxes when over wage limit?
They withhold until the limit is reached and then stop withholding, and thus your net pay goes up.
I'm assuming this is not employer-specific but how it's done everywhere, but I could be wrong.
I'm assuming this is not employer-specific but how it's done everywhere, but I could be wrong.
Re: How do employers withhold SS taxes when over wage limit?
In the years my pay went over the limit, it was #1. I don't think they could do #2 - what if you quit partway through the year?
No idea how this gets handled if you have multiple jobs.
No idea how this gets handled if you have multiple jobs.
Last edited by Gryphon on Fri Sep 24, 2021 1:42 pm, edited 1 time in total.
Re: How do employers withhold SS taxes when over wage limit?
So far always #1. Don't tell your colleagues that your paycheck is bigger when it happens because they will figure out your compensation.
Re: How do employers withhold SS taxes when over wage limit?
#1 at my old MegaCorp. Cut off was early if the bonus was good (paid out in March for prior year performance).
Re: How do employers withhold SS taxes when over wage limit?
#1 for me too, with two different employers. The year that I switch jobs after having reached the max, my new employer still withheld it, and I got the excess back on my tax refund.
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Re: How do employers withhold SS taxes when over wage limit?
Number 1 in my experience. we used to call it FICA Freedom Day.
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Re: How do employers withhold SS taxes when over wage limit?
Ah right, of course.tashnewbie wrote: ↑Fri Sep 24, 2021 1:38 pm
There is no wage limit or cap on employER contributions. Employer #2 would still owe 3.1% SS taxes on employee's income earned at job #2.
Re: How do employers withhold SS taxes when over wage limit?
Every employer withholds 6.2% for the employee and 6.2% on the employer side for a total of 12.4% Once the max is reached the employer stops withholding for both employer and employee. What happens with another employer does not effect this pathway. So if you have two jobs both paying $150K/yr Then each employer will deduct 12.4% total for SS until reaching $145k. For the last $5k there will be no withholding done.
At tax time the employee will get back 6.2% of $145k = $8,990.
the extra employer paid portion of $8,990 stays with the IRS and can't be recouped.
This is why if you are going to have two jobs and one of them hits the social security max, it is more ideal for the employee to try and be an independent contractor for the second job if at all possible.
At tax time the employee will get back 6.2% of $145k = $8,990.
the extra employer paid portion of $8,990 stays with the IRS and can't be recouped.
This is why if you are going to have two jobs and one of them hits the social security max, it is more ideal for the employee to try and be an independent contractor for the second job if at all possible.
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Re: How do employers withhold SS taxes when over wage limit?
That is not correct. Employer portion of payroll tax is 6.2% and not 3.1%dukeblue219 wrote: ↑Fri Sep 24, 2021 1:48 pmAh right, of course.tashnewbie wrote: ↑Fri Sep 24, 2021 1:38 pm
There is no wage limit or cap on employER contributions. Employer #2 would still owe 3.1% SS taxes on employee's income earned at job #2.
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Re: How do employers withhold SS taxes when over wage limit?
Always #1 for me. I've never heard of #2 being used.
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Re: How do employers withhold SS taxes when over wage limit?
Slight edit though - employer contribution is 6.2%.dukeblue219 wrote: ↑Fri Sep 24, 2021 1:48 pmAh right, of course.tashnewbie wrote: ↑Fri Sep 24, 2021 1:38 pm
There is no wage limit or cap on employER contributions. Employer #2 would still owe 3.1% SS taxes on employee's income earned at job #2.
ETA: and it sounds like employer #1's SS contribution would be capped along with the employee's. Employer #2 wouldn't be off the hook, though.
Last edited by tashnewbie on Fri Sep 24, 2021 2:04 pm, edited 1 time in total.
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Re: How do employers withhold SS taxes when over wage limit?
You're right and I realized my error when I saw your post. Edited and fixed my earlier comment.EnjoyIt wrote: ↑Fri Sep 24, 2021 1:54 pmThat is not correct. Employer portion of payroll tax is 6.2% and not 3.1%dukeblue219 wrote: ↑Fri Sep 24, 2021 1:48 pmAh right, of course.tashnewbie wrote: ↑Fri Sep 24, 2021 1:38 pm
There is no wage limit or cap on employER contributions. Employer #2 would still owe 3.1% SS taxes on employee's income earned at job #2.
Re: How do employers withhold SS taxes when over wage limit?
And then your paycheck goes down when you hit $200k because your employer starts withholding the Additional Medicare Tax @ 0.9%.
It's tough when you make so much money.
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Re: How do employers withhold SS taxes when over wage limit?
My employers always withheld the full amount until you hit the cutoff point. Then they stopped withholding it. I always loved to hit that point in the year because it felt like I was getting a pay raise. Then later in the year, I'd hit the max for 401k contributions and get another raise. October, November and December were usually good months to pad the taxable brokerage account.
Re: How do employers withhold SS taxes when over wage limit?
When I started working many decades ago, my large national employer took SS out in 24 equal installments - we got paid twice a month. (We're talking a wage base of $7800 and SS was 4.8% deduction including Medicare.) The Office grapevine always said that was done because a lot of folks would have paid the full amount of SS some time in the third or fourth quarter and got bigger checks after that. Salary increases were usually effective in January. When SS was taken out again in January, most folks would not get much if any increase in take home pay if the proper amount was deducted. Bad for morale. I would guess they sent the right amount to SS though. If anyone left during the year, their final paycheck would true things up.
Re: How do employers withhold SS taxes when over wage limit?
Yes #1. They call it "Social Security tax freedom day" nowadays because it only applies to SS taxes. Around the first of February, there is usually a blog post or tweet proclaiming the day for the top 1% of wage-earners. It's a bigger flex now that it used to be, because you have to gross over $1.7m/year (not including pre-tax deductions) to hit the cap by February 1st. That's a lot more than the top 1% wage cutoff.GenawithanE wrote: ↑Fri Sep 24, 2021 1:44 pm Number 1 in my experience. we used to call it FICA Freedom Day.
Re: How do employers withhold SS taxes when over wage limit?
An employer could not use method #2 because there is liability upon the employer for withholding employee SSA tax until the employee reaches the wage limit. As an aside the employer doesn't know if the employee will be fired, laid-off, quit, or pass away before the end of end of the year which would cause the total earnings for the year to be under the wage limit.
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Re: How do employers withhold SS taxes when over wage limit?
this was my experience (Fortune 50 company)
amounted to a nice little pay raise for the rest of the calendar year
full SS tax withholding resumed January 1st.
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Re: How do employers withhold SS taxes when over wage limit?
We didn't have that... if you maxed out before the end of the year you didn't get the match!PaunchyPirate wrote: ↑Fri Sep 24, 2021 2:09 pm My employers always withheld the full amount until you hit the cutoff point. Then they stopped withholding it. I always loved to hit that point in the year because it felt like I was getting a pay raise. Then later in the year, I'd hit the max for 401k contributions and get another raise.. October, November and December were usually good months to pad the taxable brokerage account.
(it was interesting when the date for the "bump" started being earlier. It was, in earlier years, a bit puzzling until we had figured it out...then it was..."nice".
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Re: How do employers withhold SS taxes when over wage limit?
From (many) decades ago, a colleague commented that social security deductions had just "kicked out" (at lunch, with colleagues of the same cohort). A smarter colleague noted "you just informed everyone what your bonus was last year". [We all knew we had the same base salary.}#1 at my old MegaCorp. Cut off was early if the bonus was good (paid out in March for prior year performance).
Things may have changed, but at that time, most payroll programs simply took the percentage times your paycheck. It stopped when it stopped.
Re: How do employers withhold SS taxes when over wage limit?
To the OP, #1.dukeblue219 wrote: ↑Fri Sep 24, 2021 1:35 pm I've wondered before what happens to employer contrib if said employee earns $145k at another job, too. Curious how that works.
To Duke, the second employer loses out. The employee can get a refund for overpayment due to the new job when they file their 1040, but an employer cannot.
Re: How do employers withhold SS taxes when over wage limit?
Same here. No true up if you hit the max early. We also have a very annoying way to contribute to our 401ks. Contributions have to be in the form of full percentage points. The result is you need to change the contribution % a few times a year to make sure you hit the limit. Not sure why you can’t just specific a $ amount at the beginning of the year and they take the same out of every paycheck. This is how they do it for HSAs.Nestegg_User wrote: ↑Fri Sep 24, 2021 5:35 pmWe didn't have that... if you maxed out before the end of the year you didn't get the match!PaunchyPirate wrote: ↑Fri Sep 24, 2021 2:09 pm My employers always withheld the full amount until you hit the cutoff point. Then they stopped withholding it. I always loved to hit that point in the year because it felt like I was getting a pay raise. Then later in the year, I'd hit the max for 401k contributions and get another raise.. October, November and December were usually good months to pad the taxable brokerage account.
(it was interesting when the date for the "bump" started being earlier. It was, in earlier years, a bit puzzling until we had figured it out...then it was..."nice".
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Re: How do employers withhold SS taxes when over wage limit?
On occasions when I've hit it, the withholding simply stopped and my take-home pay jumped.
Like Boglegrappler, the first time it happened it was embarrassing. I was working at a place that liked to do all kinds of tinkering and it wasn't as rare as it should have been for take-up to fluctuate a bit. And then one year a politician thought people would love him for ordering a reduction in the withholding formula and think their taxes had decreased. So when I noticed it I said to a co-worker, "huh! my take-home went up a bit this month, did yours?" "No." And when light dawned I realized I'd effectively told him that my salary was higher than his.
Like Boglegrappler, the first time it happened it was embarrassing. I was working at a place that liked to do all kinds of tinkering and it wasn't as rare as it should have been for take-up to fluctuate a bit. And then one year a politician thought people would love him for ordering a reduction in the withholding formula and think their taxes had decreased. So when I noticed it I said to a co-worker, "huh! my take-home went up a bit this month, did yours?" "No." And when light dawned I realized I'd effectively told him that my salary was higher than his.
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Re: How do employers withhold SS taxes when over wage limit?
I faced a similar situation when I retired in April of my last year. I knew in January that I would be retiring, so immediately after the first of the year I increased my payroll deductions to the maximum, which I think was 45 or something at the time. So, the payroll tax deducted dropped dramatically. Then it was corrected when I paid my taxes a year later.dukeblue219 wrote: ↑Fri Sep 24, 2021 1:35 pm I've wondered before what happens to employer contrib if said employee earns $145k at another job, too. Curious how that works.
Re: How do employers withhold SS taxes when over wage limit?
It’s already been stated, but to summarize:
Each employer withholds and pays payroll tax as though they are your only employer for the year. This means they withhold 6.2% from the employee, and pay 6.2% themselves, up to the point your total wages with them reach the wage limit. Once this limit is reached, withholding is reduced so your paychecks get bigger. It doesn’t matter whether you have another employer before, during, or after your employment with them.
If your total wages for the year from all employers exceed the wage limit, then you get the excess social security tax back on your income tax return, in the form of a tax credit.
The employers do not get a refund for the excess social security tax that was paid. It wouldn’t be super simple to do that, because you’d need a “rule” to allocate the refund, like refund to wages paid latest in the year, or pro-rata across all wages, etc. But in any case, employers get no refund. Most readers shouldn’t care, but this can affect people who have both a W-2 job, and also a 1099 job where they are incorporated. The excess SS taxes paid by the corporation are non-recoverable.
Each employer withholds and pays payroll tax as though they are your only employer for the year. This means they withhold 6.2% from the employee, and pay 6.2% themselves, up to the point your total wages with them reach the wage limit. Once this limit is reached, withholding is reduced so your paychecks get bigger. It doesn’t matter whether you have another employer before, during, or after your employment with them.
If your total wages for the year from all employers exceed the wage limit, then you get the excess social security tax back on your income tax return, in the form of a tax credit.
The employers do not get a refund for the excess social security tax that was paid. It wouldn’t be super simple to do that, because you’d need a “rule” to allocate the refund, like refund to wages paid latest in the year, or pro-rata across all wages, etc. But in any case, employers get no refund. Most readers shouldn’t care, but this can affect people who have both a W-2 job, and also a 1099 job where they are incorporated. The excess SS taxes paid by the corporation are non-recoverable.
Re: How do employers withhold SS taxes when over wage limit?
SS gets withheld at the full rate up until the check you hit the wage base, then it stops for the rest of the year.
If you have 2 jobs, they will both withhold up to he wage base. If you get overwitheld there is a form on your tax return to reconcile and you get the excess back as a tax refund.
If you have 2 jobs, they will both withhold up to he wage base. If you get overwitheld there is a form on your tax return to reconcile and you get the excess back as a tax refund.
Re: How do employers withhold SS taxes when over wage limit?
This seems to be very common. I think the reason is because 401k matches are usually determined by % of salary. If the 401k contributions are set by a %, that probably reduces the errors in determining the match and makes it easier for those who want to contribute up to the full match, but no more. For the HSA, we don't get a match but rather a fixed employer contribution with the first paycheck.TJat wrote: ↑Fri Sep 24, 2021 6:01 pmSame here. No true up if you hit the max early. We also have a very annoying way to contribute to our 401ks. Contributions have to be in the form of full percentage points. The result is you need to change the contribution % a few times a year to make sure you hit the limit. Not sure why you can’t just specific a $ amount at the beginning of the year and they take the same out of every paycheck. This is how they do it for HSAs.Nestegg_User wrote: ↑Fri Sep 24, 2021 5:35 pmWe didn't have that... if you maxed out before the end of the year you didn't get the match!PaunchyPirate wrote: ↑Fri Sep 24, 2021 2:09 pm My employers always withheld the full amount until you hit the cutoff point. Then they stopped withholding it. I always loved to hit that point in the year because it felt like I was getting a pay raise. Then later in the year, I'd hit the max for 401k contributions and get another raise.. October, November and December were usually good months to pad the taxable brokerage account.
(it was interesting when the date for the "bump" started being earlier. It was, in earlier years, a bit puzzling until we had figured it out...then it was..."nice".
But I agree, it is very obnoxious if you're trying to hit exactly $19.5k or whatever. I'm limited to just 16% now as an HCE so I just leave it set there throughout the year. At a certain point in the year my 401k will kick over from pre-tax to after-tax and my take-home pay will drop.
Re: How do employers withhold SS taxes when over wage limit?
I think you’re right. The HCE rules are weird. I decided to fund a Mega backdoor mid year, but was capped at 20% total contributions so wasn’t able to hit the max. But if I started at the beginning of the year it would’ve been fine. I could just set pretax at 20%, but I prefer to not have the company match after tax funds (once the pretax max is hit) since it makes the MBD more complicatedGrogs wrote: ↑Sun Sep 26, 2021 11:15 amThis seems to be very common. I think the reason is because 401k matches are usually determined by % of salary. If the 401k contributions are set by a %, that probably reduces the errors in determining the match and makes it easier for those who want to contribute up to the full match, but no more. For the HSA, we don't get a match but rather a fixed employer contribution with the first paycheck.TJat wrote: ↑Fri Sep 24, 2021 6:01 pmSame here. No true up if you hit the max early. We also have a very annoying way to contribute to our 401ks. Contributions have to be in the form of full percentage points. The result is you need to change the contribution % a few times a year to make sure you hit the limit. Not sure why you can’t just specific a $ amount at the beginning of the year and they take the same out of every paycheck. This is how they do it for HSAs.Nestegg_User wrote: ↑Fri Sep 24, 2021 5:35 pmWe didn't have that... if you maxed out before the end of the year you didn't get the match!PaunchyPirate wrote: ↑Fri Sep 24, 2021 2:09 pm My employers always withheld the full amount until you hit the cutoff point. Then they stopped withholding it. I always loved to hit that point in the year because it felt like I was getting a pay raise. Then later in the year, I'd hit the max for 401k contributions and get another raise.. October, November and December were usually good months to pad the taxable brokerage account.
(it was interesting when the date for the "bump" started being earlier. It was, in earlier years, a bit puzzling until we had figured it out...then it was..."nice".
But I agree, it is very obnoxious if you're trying to hit exactly $19.5k or whatever. I'm limited to just 16% now as an HCE so I just leave it set there throughout the year. At a certain point in the year my 401k will kick over from pre-tax to after-tax and my take-home pay will drop.
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Re: How do employers withhold SS taxes when over wage limit?
It is #1.
Employers, at least in my experience, withhold with no regard to other potential jobs you may have. You get it back when you file your taxes. I forget the line/form used. It happened to me in a year I changed jobs.
Employers, at least in my experience, withhold with no regard to other potential jobs you may have. You get it back when you file your taxes. I forget the line/form used. It happened to me in a year I changed jobs.