How to Claim a Credit for Excess Social Security and Tier 1 RRTA
Working for multiple employers can lead to excess Social Security or Tier 1 RRTA tax withholding. This overpayment can be recovered as a credit on your 1040.
Individuals who work for multiple employers within a single year may have too much Social Security tax withheld. This situation arises when total earnings exceed the annual limit, as each employer withholds taxes independently. A similar issue can occur for those with both a railroad and a non-railroad employer, leading to excess Tier 1 Railroad Retirement Tax Act (RRTA) tax withholding. This overpayment can be reclaimed as a refundable credit when you file your annual income tax return.
Understanding Social Security and Tier 1 RRTA Tax Limits
Employers withhold Social Security taxes from employee wages based on an annual wage base limit. For 2024, this limit is $168,600, and the employee tax rate is 6.2%. Similarly, under the Railroad Retirement Tax Act (RRTA), railroad employees pay a Tier 1 tax at the same 6.2% rate on compensation up to $168,600. An employer stops withholding these respective taxes once your earnings with them exceed the annual limit.
Overpayments occur when you work for two or more employers in the same year. Each employer is required to withhold these taxes up to the annual maximum, without considering wages earned or taxes paid at another job. This can cause your total withheld taxes to exceed the maximum amount you were legally required to pay for the year.
This differs from Medicare taxes, which are also part of the Federal Insurance Contributions Act (FICA) and RRTA. The Medicare portion of the tax does not have an annual wage base limit, so it is not possible to have an excess amount withheld as a result of working for multiple employers.
Calculating Your Excess Tax Withheld
To determine if you have an overpayment, you must review the Form W-2, “Wage and Tax Statement,” from each employer. Begin by adding the amounts from Box 4 of all your non-railroad W-2s. If you also had a railroad employer, add the amount of Tier 1 RRTA tax withheld, which is reported in Box 14 of the railroad W-2. Summing all your Social Security and Tier 1 RRTA tax withholdings gives you the total amount paid.
Next, calculate the maximum tax you should have paid. For tax year 2024, the maximum legal tax liability is $10,453.20, based on the $168,600 earnings limit and the 6.2% tax rate. This is the most you should have paid in combined Social Security and Tier 1 RRTA taxes for the year.
Finally, subtract the maximum tax allowed ($10,453.20 for 2024) from the total tax you had withheld. A positive result is the amount of your overpayment. For example, if two W-2s show a total of $12,000 in Box 4, subtracting the $10,453.20 maximum gives you an excess credit of $1,546.80.
How to Claim a Credit for the Overpayment
The overpayment is claimed as a credit on Form 1040, “U.S. Individual Income Tax Return,” by reporting the amount on Schedule 3, “Additional Credits and Payments.” The specific line is titled “Excess social security and tier 1 RRTA tax withheld.”
The credit from Schedule 3 is added to your total payments on Form 1040. This credit will either increase your tax refund or decrease the amount of tax you owe.
The method for recovering the overpayment is important. If the excess withholding resulted from having two or more employers, you must claim the credit on your tax return. However, if a single employer withheld more than the annual maximum, you cannot claim it as a credit. In this case, you must contact that employer directly for an adjustment and a refund.