Excess Social Security Tax

Everybody has different life style. One people think working hard is important. Other people think life/work balance is important. Also one just works only one job and others work several jobs. I have daytime and nitetime & weekend job. Life/work balance is very important for me. But I don't want to be bored and also try to be active. Open my mind. Be positive. Challenge new things as much as I can. Everyday I am really busy but I am so happy for my life style right now.

Why am I talking about that? I want to mention about Excess Social Security Tax. If you see W-2 form or paycheck, you can see how much your employer withholds Social Security Tax. Usually it's 6.2% of our wages and tips. But, did you know they have a limit? In 2005, the wages and earnings base is $90,000. Employer is required to withhold 6.2% of employee's wages up to $90,000. In other word, maximum social security tax is $5,580 ($90,000 x 6.2%) in 2005. You don't need to pay more than that. Wait... I can hear people's voice. How can we get that much wages?? You never know. Even if you don't get that much wage from one job, you might get that much wages from 2 jobs. Our life is all depend on what we did and what we will do. Also even if you didn't get right now, you might get it in future. So don't immediately think I don't need this tip.

If you do one job and get wages more than $90,000, the payroll system might stop collecting social security tax more than $5,580. But, if you do 2 jobs, companies didn't communicate each other. They don't know how much other company collect Social Security Tax for you. So if you get wages more than $90,000 from 2 jobs, they might collect social security tax too much. If this case happens, what do we need to do?

In such a case, the Excess Social Security Tax payment may claim on line 67, Form 1040. Remember this credit is available on Form 1040 only; Forms 1040EZ and 1040A don't have a place to enter it.

Form 1040 click here.

OK. I mentioned before we are human, not machine. We all make mistake. So do employer. If one employer mistakenly withholds too much social security tax, the taxpayer cannot claim the overpayment on his/her tax return. Rather, he/she must recover the excess withholding from the employer who made the error.

Summary

* The Maximum Social Security Tax is $5,580 ($90,000 x 6.2%) in 2005.
* The Excess Social Security Tax payment may claim on line 67, Form 1040 if you have 2 or more employers during year.
* If one employer mistakenly withholds too much social security tax, we must recover the excess withholding from the employer who made the error.

Tax Return Preparation Software

If you prepare your own tax return by using tax preparation software, please be careful. I know it’s faster, easier, and cheaper. But sometimes they have mistakes and can’t prepare it completely. You know this software made by human. Everybody make mistakes because we are not a machine, right? So you have to keep it in your mind that software might have mistakes, too. Guess what? When I took tax class, somebody cheated and did tax return preparation homework by software. Then what’s happened? Instructor accepted this person’s homework. However this person got the lowest score in our class. This person didn’t get the lowest score because of using software. The instructor found a lot of mistakes in this tax return. Please be careful.

If you use tax return preparation software;

1.Even if software said no mistake, please print everything and check all information are in or not & no mistake or not before you send. From the top to the bottom. Name, Social Security Number, Address, Filing Status, Wages, Interest Income etc. Also you miss any eligible tax deductions and/or credits or not.

2.This is not software matter. But if you send tax return by e-file and find mistakes in your tax return later, don’t send your amended return immediately. Please wait to send your amended return at least 3 weeks after IRS and/or FTB accepted. Otherwise they and their system will be confused.

New Uniform Definition of a Child

Every year, we encounter tax law changes. But, this year is one of the biggest changes due to a new uniform definition of a child (UDC). New rule requires that the definition of a qualifying child be applied once for all tax benefits. The result is that a child cannot be claimed by multiple taxpayers for different benefits. Some people knew this change by news or some other sources.

Keep it in your mind and don't be surprised. You might not get same tax benefits as last tax season.