Question: What If I Deducted Too Much Social Security (OASDI) Tax From an Employee?
Employers must deduct FICA taxes from all employees. FICA taxes are Social Security (called OASDI) and Medicare taxes. The full amount of these taxes is shared by employees and employers. There is no annual maximum Medicare tax, but there is an annual maximum Social Security tax. Employee earnings above the Social Security maximum are not taxable, either to employee or employer.
Answer:
What is the Social Security Maximum?
The Social Security (OASDI) portion of payroll taxes is required to be deducted from employee pay and matched by you as an employer, up to the annual Social Security maximum ($106,800 in 2010). If an employee's gross wages exceed this maximum in any year, no more Social Security tax needs to be deducted from employee pay or paid by the employer. Starting January 1 of the next year, the counter starts again at $0.
What If I Deducted too Much Social Security Tax?
If you deducted too much tax, you may have several things to fix:
- Refund the employee. You will need to pay the employee back for the excess deduction amount. You can give this amount back to the employee in a paycheck or as a separate check. Be sure you don't deduct Social Security from this check!
- File a Corrected 941. If the mistake was included in a Form 941 (quarterly payroll) report, you will need to file a correction form (941-X) to receive a refund.
- Change the employee's payroll record. Deduct the over-payment of Social Security taxes from the employee's payroll tax record. The W-2 Form for an employee who earns more than $106,800 should show (1) the total amount of pay earned for the year and (2) the total Social Security wages as $106,800. The Medicare wages will be the same as the total amount of pay.
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