Understanding Double SSN Withholdings
When you are employed by more than one employer, each of them withholds taxes from your paycheck, including contributions to Social Security. However, there’s a cap on how much Social Security tax you should pay in a year. Overemployed individuals often unintentionally exceed this limit, as each employer withholds Social Security taxes without knowing about your other incomes.
This situation, known as double SSN withholdings, can lead to overpayment of Social Security taxes. The good news is that you can recover this overpayment. When filing your tax return, if you’ve paid more than the maximum for the year, the excess amount will be credited back to you as a refund.
Tax Bracket Considerations
Your income tax liability is determined by your total annual income. If you have two jobs and both employers withhold taxes based on your income with them alone, they may not account for the fact that your combined income from both jobs pushes you into a higher tax bracket. As a result, you might end up owing more in taxes when you file your tax return.
To address these issues and ensure you’re not under-withholding, you may need to adjust your tax withholdings with one or both employers. You can do this by submitting a new Form W-4 to your employers, indicating the correct number of allowances or requesting additional withholding to account for your combined income.
Married Couples
Married couples face similar tax challenges as overemployed individuals when both spouses work and have multiple sources of income. It is entirely normal and, in fact, a responsible financial practice to update and adjust extra withholdings on your income, whether you are overemployed, married, or have any significant financial changes. Life circumstances can change, and so can your income and tax obligations. Updating extra withholdings ensures that you are aligning your tax payments with your actual tax liability, avoiding surprises during tax season. It’s a proactive step that allows you to maintain control over your finances and make necessary adjustments to meet your financial goals while staying compliant with tax regulations.
First Year
As long as you paid enough tax last year, adding extra withholding this year can wait. Why? The IRS calculates potential underpayment penalties based on your previous year’s tax liability. So, if you were good on the tax front before doubling your hustle, you likely won’t owe Uncle Sam any penalty fees even if your combined income rockets this year. Relax, celebrate your double dose of income, and tackle tax complexities later!
Note to Readers: This blog post is for informational purposes only and should not be taken as financial advice. Always consult with a financial advisor for personalized advice.