By CPA SAM
Social Security Started Over
Q. I have a unique variation of your “Social Security Tax on Everything” post… My wife’s small company decided to change their paycheck provider in July. The provider “reset” all employees yearly total earnings to zero and are therefore collecting the Social security tax from scratch. The provider claims they have to do this by IRS law. My wife had already paid the maximum of $6621.60. Will we be able to get the overpayment for the rest of the year back on our taxes? The instructions for line 69 of 1040, and form 843, seem to indicate that if your employer overwitholds then you are ineligible for a refund. She has not changed employers, just paycheck providers.
A. This is a very good question. Unfortunately, there is not enough information to answer your question. It sounds like this employer may have switched to a PEO also known as a Professional Employer Organization. Sometimes these are referred to as Employee Leasing Companies. When an employer joins a PEO, the employer of record changes from the employee perspective and all Social Security and unemployment taxes start over for each employee. PEOs can be a big cost savings for an employer by allowing a bunch of smaller employers to pool together for health insurance purposes to become one big client. In your case, it would restart SS withholding however because technically, there is a different employer. If this is not the case, I have no idea why SS would have started over. Simply switching payroll providers would not cause this problem because the employer would be the same. The employer would also feed in all Year-To-Date information from the old payroll provider to keep this kind of problem from surfacing.
Your second comment however is incorrect. You can still obtain a refund of excess Social Security withholding from a single employer. However, you must first ask the employer to refund the tax. This quote is taken directly from the instructions from IRS Form 843 which is needed to request this kind of repayment, “A refund of excess social security or railroad retirement (RRTA) tax withheld by any one employer, but only if the employer will not adjust the overcollection.” Refunds are available if your employer simply will not work with you.
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Samuel Kerch, CPA
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