social security tax maximum reached with taxpayers w-2 but also has k-1 self employment income

[gennarostella]

taxpayer reached max on social security tax withheld with w-2 income but also has k-1 self employment income that SE tax has been calculated.  how do I prevent this?? its not showing on schedule 3 line 11 as excess

[Just-Lisa-Now- · Accepted solution]

Be sure that both W2s and the K-1 are assigned to the correct person.  Look at Sch SE, Medicare will still be computed, but SS shouldn't be,

[gennarostella]

Thank You!!!   greatly appreciated!!    have a great day

[Tax_Lady]

Hi Just-Lisa-Now

Saw the post and your answer regarding W2's maximizing the 2019 SS Wage limit of $132,900 with K1 SE Income which led me in the correct direction of comparing the calculation on Schedule SE, and outlining my case on Excel Worksheet.

However, my twist in this situation...

1. Schedule C Net Profit is in excess of the Limit, understand how SE calculation is made using the 92.35% adjustment, reducing the W2 SS Wage Amount from the Maximum SS Wage Limit of $132,900;

2. On the Original Filed Return discovered the W2 was not entered on the W2 Worksheet. Therefore, under reported Gross, SSA, Medicare Wages -yet - now have over reported Excess SS Wage Tax of $1,240.00 (from the Originally Filed Schedule C Net Profit's SE Tax Calculation)  possibly for the Amended Form 1040X;

     a. In the past, have had other clients with Excess SS Wages from multiple Form W-2s so understand IRS Code allows for tax refund on Form 1040, and ProSeries automatically calculates and populates the Excess Wage Tax Amount. Nowhere am I finding references related to this situation, Self Employment Tax and W2. The SE Tax is from a sole proprietorship and the W2 is from a C-Corp owned by same sole proprietor who is a major shareholder of the C-Corp - these are two separate entities and businesses;

     b. I am hoping the answer is: "Make the Excess SS Wage Tax Refund on Form 1040x by overriding the cell on Form 1040, Schedule 3, Part II, Excess SS and RRA Tier 1 Smart Worksheet"!! :);

    c. Or my chagrined gut reality: "Make the Excess SS Wage Tax Refund on Form 843 due to it is not 2 W-2s that are involved." Thereby, the taxpayer has a higher 1040x balance owed and collect the Excess SSA Tax refund separately.

[qbteachmt]

I don't apply this formula like this: "how SE calculation is made using the 92.35% adjustment, reducing the W2 SS Wage Amount from the Maximum SS Wage Limit of $132,900"

The reduction from the full 15.3% is because the "employer" gets the expense of the employer share. That doesn't change the SS wage limit. It changes the tax amount from the Sched C. They don't owe as much, because it is a self-referential or circular reduction.

I have never seen the reduction applied as a Wage Limit Reduction and that doesn't seem correct to me. Does that work out to the same amount using either the reduction against the max or against the tax?

For the original question, wouldn't the total of all sources of income mean: "The maximum Social Security tax employees and employers will each pay in 2019 is $8,239.80. This is an increase of $279.00 from $7,960.80 in 2018. The Social Security wage base for self-employed individuals in 2019 will also be $132,900."

And that "wage" or Taxable net on the Sched C got reduced by the credit already, as part of the math on the SE.

[Tax_Lady]

Apologies... I must not have stated clearly. Added Sch SE background simply to say I understand the particulars of the form and calculation so it was not necessary for commenting on the ins/outs of that form. The Schedule SE on ProSeries makes most of the calculations.

The end of my message states there is a refund of $1,240.00  (true reader does not have all my numbers of Sch C Net Profit and W-2 Wages) that the taxpayer overpaid when considering the Original Sch SE is calculated compared to Form 1040X Schedule SE with adding the missed W-2.

Questions:  Able to make this type of situation Schedule SE Self Employment Income with one W2 a refund based on the tax return (Form 1040X) or use Form 843?

Thank you in advance!

[qbteachmt]

I'm not sure the question still is clear.

You don't get a refund of SS from the 1040 filing. If there is too much SS withheld on the W2, the employer would need to refund that.

If I understand you right, the W2 and the SE will result in a total SS but a max that has been reached, so you don't pay as much, which is really against a Balance Owed, as long as the amount withheld on the W2 is at least what was owed. In other words, the SE would be considered if it results in more owed or not; not the W2.  If combined there is not as much owed as the W2 shows, that would not make any sense at all.

And this is just SS. SE is SS + Medicare. That is where your Excel might be helpful.

And if this simply is an amended return issue, then all amounts paid are considered against amounts owed. The 1040 is the collection medium for SS, in the case of the SE, of course. So, a 1040X might reflect that too much was paid in for "taxes" and the amended filing will reflect corrected SE info. Is that what you are asking about?

[Tax_Lady]

Yes, I believe it is an amended Form 1040x issue due to the fact the Schedule C Net Profit exceeds SE Social Security (SS) (Fica) wage limit. Then the same taxpayer/sole proprietor has a W-2 from a different business with SS Wages, SS Tax Withheld in the amount of $1,240.00.

The taxpayer is a major shareholder, director, officer and sole employee from a LLC treated as a C-Corp Entity for tax purposes, and also receives revenue on Schedule C as Sole Proprietor of a completely different business services.

Question: 

Am I correct in saying taxpayer paid full FICA Tax on the Original Form 1040, Schedule C Net Profits?

Then once the W-2 FICA Wages and Tax Withholding of $1,240.00 was included on Form 1040X that caused Excess FICA Tax Withholding (an overpayment) from the original filing?

First Issue: When originally filed the Form 1040, Schedule C, without the W-2:   The maximum SS Wage calculation on Schedule SE (Section A -Short Form) = $8,240 ($132,900 x .062 employee share). This amount is included as "Other Taxes" on Form 1040, Schedule 2, Part II, Line 4.   (...Yes the employer share and both sides of Medicare carries to the same line...). The W2's SS (FICA) Tax Withholding of $1,240.00 is not included at this point.

Therefore, the taxpayer has met the Maximum SS (FICA) Wage Tax just on Schedule C net profit. The FICA Wage tax would have been satisfied and paid in full, an extra $1,240.00. In the end, the taxpayer netted a refund on Form 1040 Lines 20 and 21. As of this writing, the taxpayer received their refund;

Second Issue: As the W2 is added into the equation Schedule SE changes using Section B-Long Form. The Long Form = $8,240 [($132,900 - W2 SS wages) x .062 employee share]. In this scenario, the difference between Fica Wage Limit - W2 FICA Wages represents the amount remaining as Schedule C net profit FICA Self Employment to be taxed as FICA Tax. The W2 has FICA Tax Withholding of $1,240.00 so that is being added towards the maximum FiCA Tax of $8,240.00;

Result: There was an overpayment of SS (FICA) Tax of $1,240.00 based on Schedule C Net Profit. Thereby, in my opinion it is reflective as a Form 1040 Excess SS (FICA) Wage Tax to be corrected on Form 1040X.

Problem: During research on IRS Publication about Excess FICA Tax, the writings only addressed having more than one (1)  W2 from two (2) different employers. IRS Publication references if not a 1040 refundable credit then request the refund on Form 843.

ProSeries handles more than 1 W2 from 2 different employers calculation and appears on the appropriate refundable credit line.

In this situation, appears need to override the Form 1040, schedule 2, Part III, Excess Social Security/RRA 1 Tax Smart Worksheet.

In This issue, ProSeries is not calculating the differences yet appears the software is recognizing that it is a wash (not to confuse term with Schedule D Capital Sales of gains/losses) and there is no additional FICA Tax to be refunded;

[qbteachmt]

I'm a bit confused. You "believe it is an amended Form 1040x" that you are preparing, are looking at?

"Am I correct in saying taxpayer paid full FICA Tax on the Original Form 1040, Schedule C Net Profits?"

We cannot see their form(s). You would confirm the data and do some math. Your issues for Sched 1 and 2 are the same issue; you would confirm if that data is correct for the additional tax owed and for the deduction for the 50% owed.

And, as @Just-Lisa-Now- points out, the Sched SE should show Medicare computed, which has no limit, and SS only to the limit, for the combination of W2 + Sched C for the same person when that person exceeds the max for SS.

[Tax_Lady]

1. I'm a bit confused. You "believe it is an amended Form 1040x" that you are preparing, are looking at?

Yes, I am preparing a 1040X to report a missed entry of a W2:  Gross Wages (Box1), SS Fica Wages (Box 3), Medicare Wages (box 5) are all $20k; SSA FICA Tax Withheld (Box 4) $1,240.00; Medicare Tax Withheld $290.00.

2. "Am I correct in saying taxpayer paid full FICA Tax on the Original Form 1040, Schedule C Net Profits?"

Yes, Form 1040, Schedule C Net Profits approximately $250k, forgot to include the W2 from Bullet #1.

3. We cannot see their form(s). You would confirm the data and do some math. Your issues for Sched 1 and 2 are the same issue; you would confirm if that data is correct for the additional tax owed and for the deduction for the 50% owed.

    a. Understand and realize that I am not digging into the details of the entire Schedule SE. For instance, when I did reference the 92.35% adjustment in an earlier post, it seemed to confuse the situation so I jumped ahead within the equations of Sch SE. Trying to simplified by discussing only the FICA Wage Limitation & corresponding Tax. Realize Medicare Wages and tax is also done on Sch SE but that was not relevant to the Refundable Excess FICA Tax problem. ProSeries is making all of those calculations, nicely;

    b. Here are the math calculations from the above data:

Schedule C Net Profit $251,760

92.35% adjustment     $232,500

Max SS Wage Limit    $132,900 (where I started in my beginning post since the first two numbers irrelevant to the mathematical mechanics until this point.)

    The original filed Form 1040, Schedule SE, Part 1 Short Form A ($132,900 x .062 employee share/portion of FICA Tax already adjusting for 50%) = $8,239.80 rounded up to $8,240.00.

    The Amended Form 1040X, Schedule SE, Part II Long Form B ($132,900 - $20,000 W2 Employee Fica Wages) = $112,900 Adjusted FICA Wage Limit applied to Schedule C Net Profit. Next step $112,900 x .062 = $6,999.80 + $1,240.00 W2 Fica Tax =$8,239.80 rounded up to $8,240.00.

(The employer share of 6.2% of $112,900 = $8,240.00) Combined FICA Tax = $16,480.00

     Yes, the numbers are the same when comparing the Originally Filed Calculation to the Amended Calculation.

     Yet, in my humble opinion, taxpayer already paid on Sch SE, Part 1 Short Form A the difference of $1,240.00 via Schedule C Net Profit - the amount already on Form W2. Is my opinion correct?

     If my humble opinion is correct, then there would be Refundable Excess FiCA Tax of $1,240.00.

     Does the Refundable Excess FICA Tax claim on Form 1040, Schedule 3, Part II, Line 11 (a. Smart Worksheet for Excess Social Security and Tier 1 RRTA Tax Withheld)? As I mentioned before, IRS Publication specifically discusses two W-2s from two different Employers. Current/Prior years, I have other clients claim Excess FICA Tax many times so I understand that ProSeries makes that calculation easily. On the other hand, IRS Publication says to file refund on Form 843 if the scenario is not 2 W2s from 2 different employers. Yet, in my humblest opinion, the Schedule C Net Profit is the driving force causing the Excess Fica Tax Withheld. In years, past when the W2 was properly and correctly entered no Excess because the Sch SE Part 2 Long Form B calculates the equation perfectly!

Hopefully, this gives y'all more clarification and understanding of this case situation.

[qbteachmt]

@Just-Lisa-Now- 

Can you help with this? I cannot think it through without seeing the previous filings.

[Just-Lisa-Now-]

Its too complex for me to work through without it being right in front of me....Ive never used Form 843 either so I have no idea if that's necessary or an option.