Tax, Payroll, Finance, Technology

Social Security Tax Keeps Going and Going…

Q. I work for a large company that maintains a few different business units under the parent company.  The company uses different tax ID’s for each business unit.  This year I changed jobs internally, moving from one business unit to another.  In July I noticed that my year-to-date FICA contributions had reset as a result of the change.  The result for me is that my net income will be significantly lower in the last 4 months of this year (typically I’d have reached my FICA cap by the end of August, and I’d see my net income rise in the remaining months of the year), and I won’t see that income returned to me until April 2010 when I complete my 2009 tax return. Is there any mechanism that might be available to our payroll department to account for the contributions already made under the previous Tax ID?  I’m lead to believe there’s nothing that can be done in this scenario, despite the fact that the company only has a single payroll department.

A. This is a very good question that shows you are very observant about things changing on your paystub.  I fear most employees would not notice the FICA reset. The bad news is, there is no mechanism for directly stopping FICA contributions due to this change. If the employees are really only moving between divisions with separate EIN’s, perhaps your company could set up a “common paymaster” arrangement where the employees really only work for one employer.  Without an arrangement like this, not only do your FICA taxes continue, but your employer matches of Social Security continue as well.  Your employer does not have the opportunity to recover the double tax as you do on your tax return.  Employees moving between divisions become very expensive under the scenario you described because of the extra tax.

The good news is (you mentioned it in your question) that you do get to claim the extra SS tax as a refund on your tax return.  That being said, if you get most of the double Social Security tax back, you may be able to adjust your allowances to reduce federal withholding for the remainder of the year to compensate.  You want to check with your CPA or tax adviser to make sure that when you change your W-4, you have the correct tax withholding amount.  You don’t want to be under withheld when the tax return is filed and cause penalties and interest.  You can use the Paycheck Calculator at PaycheckCity.com to determine what filing status and allowance value will get you the correct amount of withholding from each check so you can complete your W-4 accurately.

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