Steps for Overpaid Railroad Retirement and Social Security Taxes

Greetings, everyone, and welcome to another edition of the Highball Advisors Railroad Retirement whiteboard series. I'm John McNamara, representing Highball Advisors, and today we're delving into a topic that may be of great interest to individuals juggling multiple jobs or sources of income. Specifically, we're going to explore situations where one might be contributing to both railroad retirement and Social Security, potentially leading to overpayments in payroll taxes. It's essential to distinguish between income tax and payroll tax in this context.

We're focusing on the tier one portion of Social Security and railroad retirement, as tier two is not relevant to this discussion. Both tier one and Social Security share the same contribution rate of 6.2% of your paycheck. In 2023, the limit for this contribution is set at $160,200. If you hold two positions, each contributing to these systems, and the combined income surpasses this annual limit—say, one position pays $120,000, and the other pays $80,000, totaling $200,000—you may find yourself paying excessive payroll taxes. This annual limit also adjusts for inflation, so it's crucial to stay informed about the current figure.

The good news is that if your total paid income exceeds this annual amount, you are entitled to a tax credit that you can claim on your tax return to recover the overpaid amount. If you have a single employer, the process is relatively straightforward. You can file a Form 843 to claim your tax credit, and it's typically a smooth process for the tier one portion.

However, if you have two different employers contributing to your tier one portion and you've overpaid, the excess will appear as a tax credit on line 11 of your 1040 Schedule 3 when you file your tax return. This means you'll need to address this issue on your tax return by yourself.

Now, let's touch on the tier two portion. Overpayments can also occur in the two-employer situation, especially if you've transitioned from one railroad employer to another and exceeded the annual limit. In such cases, you should file a Form 843, Claim for Refund and Request for Abatement, and attach your relevant W-2 forms. It's crucial to send this documentation via certified mail because the IRS can take quite some time to process and refund the overpaid amount.

In summary, it's vital to be aware of the tier one and Social Security contributions if you're working two jobs simultaneously and earning income close to or above the annual limit. Understanding how to claim tax credits for overpayments can help you avoid paying excessive payroll taxes.

I hope you found this video informative and valuable. Feel free to reach out to me if you have any questions or if you're approaching retirement and would like assistance with the boarding for retirement process. Don't forget to click the notification bell to stay updated with our latest videos, and I genuinely appreciate your subscriptions and support. Until next time, please stay safe, stay on track, and take care. Farewell, everyone!

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Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. Highball Advisors encourages you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Highball Advisors, and all rights are reserved from Highball Advisors, and all rights are reserved.