Tax 2004: Witholding Amounts
— -- Did you or someone in your family switch jobs or moonlight during 2003?
Before filing your Form 1040, it is a good idea to recheck the totals shown on the W-2 forms for the salaries you received and the taxes that you already paid through withholding for federal, state and city income taxes and for Social Security taxes.
In particular, see whether the total exceeds $5,394 for the amounts withheld by your employers for Social Security taxes.
For 2003, you should not have paid more than $5,394. The rate for Social Security taxes is 6.20 percent of wages up to $87,000, with no limit on the amount of wages subject to the rate of 1.45 percent for Medicare taxes. If you worked for two or more employers and they took out more than $5,394, claim the amount in excess of $5,394 on line 64 of Form 1040 as a tax payment, just the same as withholding for income taxes. This payment will reduce the amount you owe or increase your refund.
Don't make the mistake of adding Social Security withheld from your spouse's wages to the amount withheld from your wages. Any excess withholding should be figured separately for yourself and your spouse. If a single employer mistakenly withheld more than $5,394 for Social Security, straighten the matter out with the employer. You cannot claim the excess as a payment of your income tax.
For 2003, the Social Security tax of 12.40 percent applies to net self-employment earnings (receipts minus earnings) up to $87,000. The no-ceiling Medicare tax is 2.90 percent for self-employeds.
The self-employment tax kicks in when you have self-employment earnings of over $400 from the operation of a business or profession, whether as a sole proprietor, a partnership with others or as an independent contractor.
The law requires you to report your earnings and pay the self-employment tax (use Schedule SE to do the paperwork), even if you are not otherwise obliged to file Form 1040, regardless of your age, and even if you receive Social Security benefits.
But the law also authorizes a break when you have more than one self-employed operation. You can combine the earnings from all of them; consequently, the losses from one or more businesses offset the earnings from those that are profitable.
You are off the hook for the self-employment tax (Social Security part of 12.40 percent) if you paid the full Social Security tax of $5,394 through withholding on wages. Put another way, forget about the 12.40 percent part if you worked for someone else and received salary or wages of $87,000 or more on which your employer withheld Social Security.
To somewhat ease the hurt, remember to claim a deduction for one-half of the self-employment tax on line 28 of Form 1040.
The IRS characterizes this kind of write-off as an "above-the-line" adjustment, meaning it gets subtracted from gross income to arrive at adjusted gross income at the bottom of page one, just the same as alimony payments and contributions to traditional IRAs and other retirement plans.
Popular Reads
ABC News Live