Here’s my situation: I earned $89k earlier this year as a W-2 employee. Now, as an S Corp owner, I need to pay myself $150k before the year ends. This will push me over the $168,600 Social Security wage cap.
From what I understand, the IRS doesn’t refund Social Security overpayments made by employers. Can I adjust my payroll through Gusto to avoid overpaying since I already know my total wages from my previous job?
No, unfortunately you can’t. Separate employers can’t account for Social Security taxes withheld by other employers.
Employees can recover overpaid Social Security tax when filing their taxes, but there’s no process for employers to do the same.
@Rin
Just to make sure—since I haven’t run payroll yet and know my previous earnings, can’t I just adjust this beforehand?
Whit said:
@Rin
Just to make sure—since I haven’t run payroll yet and know my previous earnings, can’t I just adjust this beforehand?
Nope, you can’t adjust it. The law doesn’t allow it, even if you know your prior earnings. Your S Corp still has to withhold and pay Social Security taxes up to the cap.
Whit said:
@Rin
Seems crazy, but thanks for explaining. Why don’t they allow a cap for employers?
It’s just how the tax code is written. If they allowed it, which employer would get the break? The last one? Splitting it between employers would create complications, and employees could abuse the system by faking prior earnings.
The cap applies to employees, not employers. Employers are required to pay their share on all wages up to the cap, regardless of other employers.
Your S Corp has to pay its share of Social Security taxes on all your wages. There’s no relief for employers, even if the employee goes over the cap. For your share, the company must still withhold Social Security taxes. You can adjust federal income tax withholding to account for the overpayment credit.
Whit said:
@Brianna
What happens if I manually stop withholding Social Security on wages over $168,600?
That wouldn’t be allowed. Your S Corp has to withhold and pay Social Security taxes on all eligible wages. You can’t get around it.
Whit said:
@Brianna
Got it. It’s frustrating, though. Why can’t this be tracked across companies?
It’s one of the downsides of how payroll taxes are structured. Each employer is responsible for their share, regardless of the employee’s other jobs.
@Brianna
It’s been a rough first year with my S Corp. Hoping the savings balance out in the long run.