How do employers withhold SS taxes when over wage limit?

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills.
Post Reply
Topic Author
gt4715b
Posts: 534
Joined: Mon Jun 11, 2007 10:29 am

How do employers withhold SS taxes when over wage limit?

Post by gt4715b »

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!
dukeblue219
Posts: 4074
Joined: Fri Jan 29, 2016 11:40 am

Re: How do employers withhold SS taxes when over wage limit?

Post by dukeblue219 »

I've wondered before what happens to employer contrib if said employee earns $145k at another job, too. Curious how that works.
tashnewbie
Posts: 4283
Joined: Thu Apr 23, 2020 12:44 pm

Re: How do employers withhold SS taxes when over wage limit?

Post by tashnewbie »

#1 in my very limited experience (only 2020 and 2021, so far).
tashnewbie
Posts: 4283
Joined: Thu Apr 23, 2020 12:44 pm

Re: How do employers withhold SS taxes when over wage limit?

Post by tashnewbie »

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.
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.

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.
JohnFiscal
Posts: 1113
Joined: Mon Jan 06, 2014 3:28 pm
Location: US citizen now retired in Canada. Subject to income tax in both.

Re: How do employers withhold SS taxes when over wage limit?

Post by JohnFiscal »

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!
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.

Probably more complicated if one has multiple payroll jobs.
pizzy
Posts: 4339
Joined: Tue Jun 02, 2020 6:59 pm

Re: How do employers withhold SS taxes when over wage limit?

Post by pizzy »

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.
The individual reconciles at tax time.
Vanguard/Fidelity | 76% US Stock | 16% Int'l Stock | 8% Cash
Admiral
Posts: 5039
Joined: Mon Oct 27, 2014 12:35 pm

Re: How do employers withhold SS taxes when over wage limit?

Post by Admiral »

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.
Gryphon
Posts: 631
Joined: Sat May 07, 2016 11:43 am
Location: Missouri

Re: How do employers withhold SS taxes when over wage limit?

Post by Gryphon »

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.
Last edited by Gryphon on Fri Sep 24, 2021 1:42 pm, edited 1 time in total.
livesoft
Posts: 86075
Joined: Thu Mar 01, 2007 7:00 pm

Re: How do employers withhold SS taxes when over wage limit?

Post by livesoft »

So far always #1. Don't tell your colleagues that your paycheck is bigger when it happens because they will figure out your compensation.
Wiki This signature message sponsored by sscritic: Learn to fish.
User avatar
elcadarj
Posts: 250
Joined: Tue Aug 30, 2016 8:21 am
Location: Charlotte Metro

Re: How do employers withhold SS taxes when over wage limit?

Post by elcadarj »

#1 at my old MegaCorp. Cut off was early if the bonus was good (paid out in March for prior year performance).
pasadena
Posts: 2337
Joined: Sat Jul 02, 2016 1:23 am
Location: PNW

Re: How do employers withhold SS taxes when over wage limit?

Post by pasadena »

#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.
GenawithanE
Posts: 181
Joined: Mon Aug 26, 2019 11:14 pm

Re: How do employers withhold SS taxes when over wage limit?

Post by GenawithanE »

Number 1 in my experience. we used to call it FICA Freedom Day.
dukeblue219
Posts: 4074
Joined: Fri Jan 29, 2016 11:40 am

Re: How do employers withhold SS taxes when over wage limit?

Post by dukeblue219 »

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.
Ah right, of course.
EnjoyIt
Posts: 8272
Joined: Sun Dec 29, 2013 7:06 pm

Re: How do employers withhold SS taxes when over wage limit?

Post by EnjoyIt »

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.
A time to EVALUATE your jitters: | viewtopic.php?p=1139732#p1139732
EnjoyIt
Posts: 8272
Joined: Sun Dec 29, 2013 7:06 pm

Re: How do employers withhold SS taxes when over wage limit?

Post by EnjoyIt »

dukeblue219 wrote: Fri Sep 24, 2021 1:48 pm
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.
Ah right, of course.
That is not correct. Employer portion of payroll tax is 6.2% and not 3.1%
A time to EVALUATE your jitters: | viewtopic.php?p=1139732#p1139732
sycamore
Posts: 6359
Joined: Tue May 08, 2018 12:06 pm

Re: How do employers withhold SS taxes when over wage limit?

Post by sycamore »

Always #1 for me. I've never heard of #2 being used.
tashnewbie
Posts: 4283
Joined: Thu Apr 23, 2020 12:44 pm

Re: How do employers withhold SS taxes when over wage limit?

Post by tashnewbie »

dukeblue219 wrote: Fri Sep 24, 2021 1:48 pm
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.
Ah right, of course.
Slight edit though - employer contribution is 6.2%.

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.
tashnewbie
Posts: 4283
Joined: Thu Apr 23, 2020 12:44 pm

Re: How do employers withhold SS taxes when over wage limit?

Post by tashnewbie »

EnjoyIt wrote: Fri Sep 24, 2021 1:54 pm
dukeblue219 wrote: Fri Sep 24, 2021 1:48 pm
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.
Ah right, of course.
That is not correct. Employer portion of payroll tax is 6.2% and not 3.1%
You're right and I realized my error when I saw your post. Edited and fixed my earlier comment.
PVW
Posts: 807
Joined: Mon Dec 29, 2014 10:01 am

Re: How do employers withhold SS taxes when over wage limit?

Post by PVW »

gt4715b wrote: Fri Sep 24, 2021 1:31 pm 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.
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.
PaunchyPirate
Posts: 1163
Joined: Sun Nov 30, 2014 6:58 pm

Re: How do employers withhold SS taxes when over wage limit?

Post by PaunchyPirate »

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.
pshonore
Posts: 8212
Joined: Sun Jun 28, 2009 2:21 pm

Re: How do employers withhold SS taxes when over wage limit?

Post by pshonore »

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.
User avatar
Plano
Posts: 69
Joined: Sun Nov 03, 2019 3:21 pm

Re: How do employers withhold SS taxes when over wage limit?

Post by Plano »

GenawithanE wrote: Fri Sep 24, 2021 1:44 pm Number 1 in my experience. we used to call it FICA Freedom Day.
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. :moneybag
123
Posts: 10415
Joined: Fri Oct 12, 2012 3:55 pm

Re: How do employers withhold SS taxes when over wage limit?

Post by 123 »

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.
The closest helping hand is at the end of your own arm.
mr_brightside
Posts: 897
Joined: Sat Oct 17, 2020 3:23 pm

Re: How do employers withhold SS taxes when over wage limit?

Post by mr_brightside »

Admiral wrote: Fri Sep 24, 2021 1:39 pm 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.
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.

-------------------------------------
User avatar
Nestegg_User
Posts: 2112
Joined: Wed Aug 05, 2009 1:26 pm

Re: How do employers withhold SS taxes when over wage limit?

Post by Nestegg_User »

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.
We didn't have that... if you maxed out before the end of the year you didn't get the match!

(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".
Boglegrappler
Posts: 1489
Joined: Wed Aug 01, 2012 9:24 am

Re: How do employers withhold SS taxes when over wage limit?

Post by Boglegrappler »

#1 at my old MegaCorp. Cut off was early if the bonus was good (paid out in March for prior year performance).
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.}

Things may have changed, but at that time, most payroll programs simply took the percentage times your paycheck. It stopped when it stopped.
Big Dog
Posts: 4608
Joined: Mon Sep 07, 2015 4:12 pm

Re: How do employers withhold SS taxes when over wage limit?

Post by Big Dog »

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 the OP, #1.

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.
User avatar
riverant
Posts: 1073
Joined: Tue May 04, 2021 6:51 am

Re: How do employers withhold SS taxes when over wage limit?

Post by riverant »

Nestegg_User wrote: Fri Sep 24, 2021 5:35 pm
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.
We didn't have that... if you maxed out before the end of the year you didn't get the match!

(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".
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.
User avatar
nisiprius
Advisory Board
Posts: 52211
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: How do employers withhold SS taxes when over wage limit?

Post by nisiprius »

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.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
SnowBog
Posts: 4699
Joined: Fri Dec 21, 2018 10:21 pm

Re: How do employers withhold SS taxes when over wage limit?

Post by SnowBog »

nisiprius wrote: Fri Sep 24, 2021 6:33 pm ... And when light dawned I realized I'd effectively told him that my salary was higher than his.
Same reason if anyone (family, friends, coworkers) ask me if we had received our stimulus checks, I just go along with it...
cbeck
Posts: 640
Joined: Sun Jun 24, 2012 1:28 am

Re: How do employers withhold SS taxes when over wage limit?

Post by cbeck »

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.
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.
fyre4ce
Posts: 2544
Joined: Sun Aug 06, 2017 11:29 am

Re: How do employers withhold SS taxes when over wage limit?

Post by fyre4ce »

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.
jharkin
Posts: 3469
Joined: Mon Mar 28, 2016 7:14 am
Location: Boston suburbs

Re: How do employers withhold SS taxes when over wage limit?

Post by jharkin »

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.
Grogs
Posts: 1174
Joined: Tue Mar 24, 2015 4:55 pm

Re: How do employers withhold SS taxes when over wage limit?

Post by Grogs »

TJat wrote: Fri Sep 24, 2021 6:01 pm
Nestegg_User wrote: Fri Sep 24, 2021 5:35 pm
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.
We didn't have that... if you maxed out before the end of the year you didn't get the match!

(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".
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.
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.

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.
User avatar
riverant
Posts: 1073
Joined: Tue May 04, 2021 6:51 am

Re: How do employers withhold SS taxes when over wage limit?

Post by riverant »

Grogs wrote: Sun Sep 26, 2021 11:15 am
TJat wrote: Fri Sep 24, 2021 6:01 pm
Nestegg_User wrote: Fri Sep 24, 2021 5:35 pm
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.
We didn't have that... if you maxed out before the end of the year you didn't get the match!

(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".
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.
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.

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.
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 complicated
Triple digit golfer
Posts: 10433
Joined: Mon May 18, 2009 5:57 pm

Re: How do employers withhold SS taxes when over wage limit?

Post by Triple digit golfer »

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.
Post Reply