If you’re a high earner, the Social Security income limit means you don’t have to pay Social Security taxes once you’ve hit the wage base for the year. If you have a single employer, they simply stop withholding Social Security taxes once you hit the limit. But what happens if you pay too much Social Security tax because you have multiple jobs, change jobs, or do freelance work on the side?
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Social Security Income Limit
The Social Security wage base for tax year 2022 is $147,000. Once you earn more, you no longer owe Social Security tax.
This limit is adjusted for inflation each year. It was $142,800 in 2021 and will likely be higher in 2023.
What happens if you change jobs?
Let’s say you made $70,000 in one job for the first half of the year and $80,000 in a new job in the second half of the year. That total income of $150,000 leaves you with $3,000 of income above the 2022 Social Security wage base that should not be subject to Social Security taxes. The problem is because you earned the income through two employers, their payroll departments don’t know what you made at your other job.
You have two options if a job change puts you above the Social Security income limit.
- Wait until you file your tax return. You will receive a refund for any excess Social Security tax withholding.
- Provide your new employer with your withholding information from your previous employer. They can then stop Social Security tax withholding once you’ve hit the annual wage base. Your mileage may vary on how helpful your employer will be in doing this.
What if you have multiple jobs?
If you have multiple jobs that put you above the Social Security wage base, your options are similar to changing jobs.
- Wait until you file your tax return. When you file your return, you’ll receive credit for any excess withholding.
- Once your combined income for the year hits the wage base, provide proof to each employer and ask them to stop Social Security withholding.
Note that each employer will always stop withholding once you reach the wage base with them. For example, if you have a $150,000 job and a $10,000 side job, the main job will stop withholding Social Security taxes once you hit $147,000. The side job will withhold Social Security tax on the full $10,000.
What if you freelance, earn 1099 side income, or own a business?
If you have both wage and self-employment income, the process changes slightly. Social Security tax is applied to wages first.
For any employers that pay you W-2 wages, they will withhold Social Security taxes as outlined above.
If you have both wage and self-employment income, you only pay Social Security taxes on the wage base minus your wages.
- If you have wages of $150,000 and self-employment income of $10,000, you are above the $147,000 wage base and pay no Social Security tax on the $10,000.
- If you have wages of $140,000 and self-employment income of $10,000, you pay Social Security tax on $7,000 of the self-employment income ($147,000-$140,000).
- If you have wages of $100,000 and self-employment income of $10,000, your total income is less than $147,000, so you pay Social Security tax on all of it.
If you have multiple self-employment activities, the same rules as above apply. You don’t need to decide which self-employment activity gets taxed first because they’re all combined for the purposes of calculating Social Security/Self-Employment tax.
Note: If you take a salary from your business, such as wages for your S-corporation, any wages reported as a W-2 count as from an employer. Only your profits count as self-employment income.
Who can help you with this?
Paying too much in Social Security taxes is something that your tax filing software can easily resolve. It will add up all of your W-2s, 1099s, and tax withholding then calculate the exact refund to request on your tax return.