Medicare Tax Twice From Payroll?

Q. Because of the economic situation, I now have to work two jobs because  my main job cut my hours.  I have Medicare and Social Security tax coming out of both checks.  Isn’t there a way to stop this tax deduction from one of them?

A.  Unfortunately…no.  Medicare withholding is required on all your wages.  It is calculated at 1.45% of taxable gross.  Your employer matches this amount as well.  There is no limit on Medicare withholding tax.  Therefore, it should be withheld from wages at all jobs, even if you are retired.  Those who are self-employed must make estimated tax payments  to cover this obligation as well.  Self-employed individuals should get with a tax preparer or adviser to ensure they are making enough estimated tax payments and to determine what that liability might look like in their situation.

Social Security on the other hand has some different rules.  Like Medicare, Social Security withholding is required to be withheld from every job even if you are retired.  However, there are two quirks to this tax.  For 2011, the most income that can be taxed for Social Security purposes is $106,800.  This number changes almost every year.  In 2011, as the result of a tax cut, employees pay only 4.2% of their taxable wages towards the Social Security liability.  Employers must pay 6.2%.  That means in 2011, 10.4% of all taxable wages go towards Social Security.  Employees, however, pay at most $4485.60 per year.

But wait!  There is a catch.  If you have multiple jobs during the year, and your withholding is more than $4485.60 for Social Security purposes, you can get a refund of the extra Social Security tax you paid during 2011 on your tax return when you file in 2012.  When would this happen?  As mentioned, you could have multiple jobs that push you over the limit. You could also change jobs after meeting the limit.  The employer at your second job would also start withholding as if there was none taken during the year.

The seemingly unfair part about the Social Security tax is the employee gets a refund for overwithheld Social Security tax.  The employer does not.  The employer must pay 6.2% of all wages up to the limit on each employee regardless if they met the withholding limit somewhere else.

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