Paying Social Security Tax When Switching Jobs

You may be unwise to switch horses in midstream, but there's nothing you can do about Social Security when you switch jobs: the tax is still there, paid by you and shared by your employer. According to federal tax law, all salaried workers and wage earners must pay the "payroll tax" at the rate of 4.2 percent of their gross earnings (in 2012); your employer is obligated to transfer this money to the IRS and also contribute 6.2 percent as well (also in 2012). If your income is approaching the "wage base limit" on payroll taxes, however, you can take steps with a new boss to prevent an overpayment.

The Wage Base Limit

Social Security limits payroll taxes to the first $110,100 of your income -- the "wage base limit." Any income above this amount is not subject to Social Security tax, although it is still subject to Medicare tax. Your first employer should automatically stop Social Security withholding when you reach this income level; your total Social Security obligation for a year, no matter how much you earn, is limited to $4,624.20.

Next Employer

If you switch jobs, you salary information remains with your first employer, who has no legal obligation (or incentive) to share this information with your second. Without accurate records, your second employer will not know if or when you reach the wage base limit. For this reason, you may find that you're paying Social Security taxes even as your earnings for the year exceed the wage base limit.

How to Stop Withholding

In order to stop an overpayment, contact your company's payroll department and explain that your annual earnings is approaching, or has already exceeded, the Social Security wage base limit. Provide documentation of income earned from your previous employer. The employer has the option to cease payroll tax withholding if you request it, or make a refund to you if you've already had too much withheld. If you do make an overpayment, you can also claim a credit on your tax return.

Benefits and Wage Deductions

Remember that it's not just wages that go toward the wage base limit. You must add to your income any taxable fringe benefits, such as employer-paid contributions to a pension plan. You also may subtract pretax insurance or pension payments and reimbursements for such things as day care, parking or travel expenses that the IRS considers deductible. The result is the taxable gross Social Security income that is counted as part of the wage base limit.

About the Author

Founder/president of the innovative reference publisher The Archive LLC, Tom Streissguth has been a self-employed business owner, independent bookseller and freelance author in the school/library market. Holding a bachelor's degree from Yale, Streissguth has published more than 100 works of history, biography, current affairs and geography for young readers.

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