The Social Security retirement and disability programs require all workers to pay in to the system through payroll taxes. Employers share in the burden, paying 6.2 percent of a worker's gross salary to the IRS as of 2012 -- while the employee's share is 4.2 percent. Self-employed individuals pay both the employer and employee share. Although the IRS collects payroll tax on behalf of Social Security, for most people the agency keeps the subject of payroll taxes off of the annual income tax return.
Deductions and Exemptions
The IRS allows you to deduct some tax payments, including state income tax, property tax and vehicle registration fees, as long as you itemize deductions. However, payroll taxes are not deductible. Nor can you exempt any part of your income from payment of Social Security tax. Your entire salary is subject to this whithholding tax, up to the "wage base limit" that Social Security sets for higher income earners.
Wage Base Limit
The wage base limit in 2012 was set at the first $110,100 of gross income. You pay taxes only on earnings up to this amount; if you earn more, the portion above $110,100 is exempt from Social Security tax. The payroll tax is limited in this way because benefits are limited; everyone is subject to a maximum monthly retirement or disability benefit, no matter how much they earn. In some cases, however, workers may find themselves paying Social Security tax above the wage base limit -- in which case, they have some calculating to do on their Form 1040s.
Two or More Employers
If you change jobs or have more than two employers during the year, you may find that you're having Social Security tax withheld when you should be exempt. The law does not require employers to share your salary information; therefore, a second or subsequent employer may continue to withhold payroll tax even as you earn past the total wage base limit of $110,100 a year.
Credit for Over-Withholding
The amount of Social Security payroll tax you've paid appears in Box 4 of your W-2 each year. If you've paid Social Security tax above income of $110,100, you are entitled to a credit from the IRS. If you are eligible, you enter the excess amount on Line 69 of your Form 1040, or Line 41 of Form 1040A. You can't claim the credit if you use Form 1040EZ, and if you owe taxes for the current or past years, the IRS will apply the credit to your past due amounts first and then refund the balance to you.
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.