2f:["$","$L30",null,{"category":"$31","relatedArticles":[{"id":"cG9zdDoyMzI2MTI=","databaseId":232612,"postId":232612,"author":{"node":{"id":"dXNlcjo5OQ==","databaseId":99,"userId":99,"avatar":{"url":"https://secure.gravatar.com/avatar/67b8e9b4ee40c2b36d23ca662b66d02f?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Ashley Kilroy is an experienced financial writer currently serving as an investment and insurance expert at SmartAsset. In addition to being a contributing writer at SmartAsset, she writes for solo entrepreneurs as well as for Fortune 500 companies. Ashley is a finance graduate of the University of Cincinnati. When she isn’t helping people understand their finances, you may find Ashley cage diving with great whites or on safari in South Africa.","additionalMeta":{"expertise":null,"__typename":"User_Additionalmeta"},"email":null,"firstName":"Ashley","fullName":"Ashley Kilroy","lastName":"Kilroy","name":"Ashley Kilroy","postCount":{"pageInfo":{"offsetPagination":{"total":530,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"achorpenning","__typename":"User"},"__typename":"NodeWithAuthorToUserConnectionEdge"},"categories":{"nodes":[{"id":"dGVybToxMzY=","children":{"nodes":[{"name":"Other","slug":"other-taxes","__typename":"Category"},{"name":"Tax Credits & Deductions","slug":"tax-credits-deductions","__typename":"Category"},{"name":"Tax Filing","slug":"tax-filing","__typename":"Category"},{"name":"Tax Planning","slug":"tax-planning","__typename":"Category"},{"name":"Tax Policy","slug":"tax-policy","__typename":"Category"}],"__typename":"CategoryToCategoryConnection"},"databaseId":136,"categoryId":136,"link":"https://smartasset.com/taxes/articles","name":"Taxes","postCount":{"pageInfo":{"offsetPagination":{"total":224,"__typename":"OffsetPaginationPageInfo"},"__typename":"CategoryToPostConnectionPageInfo"},"__typename":"CategoryToPostConnection"},"slug":"taxes","ancestors":null,"parent":null,"__typename":"Category"}],"__typename":"PostToCategoryConnection"},"content":"$32","date":"2024-01-05T16:19:05","excerpt":"

California is one of the most expensive states to live in – but numerous tax credits can lighten the load for working individuals and families. Specifically, the California Earned Income Tax Credit (CalEITC) can enhance your tax refund from the state. In addition, taxpayers who qualify for this credit often can claim a host of […]

\n","featuredImage":{"id":"cG9zdDoyMzQzMzY=","databaseId":234336,"altText":"Parents looking up the requirements for the California Earned Income Tax Credit (CalEITC).","date":"2024-01-05T16:11:34","fileSize":180040,"mimeType":"image/jpeg","modified":"2024-01-05T16:13:08","sourceUrl":"https://smartasset.com/wp-content/uploads/sites/2/2024/01/iStock-1263790967.jpg","__typename":"MediaItem"},"modified":{"datetime":"2024-1-5","readable":"January 5, 2024"},"multipleBylinesByRole":{"editedBy":{"id":"dXNlcjoxMTc=","databaseId":117,"userId":117,"avatar":{"url":"https://secure.gravatar.com/avatar/9fffe2eb35204e151b68731435d247c5?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Arturo Conde is a senior editor at SmartAsset. He has a master’s from the Graduate School of Journalism at Columbia University and a bachelor’s from the College of Arts and Science at New York University. As a certified educator in personal finance, he edits and writes content that focuses on retirement, investments, home buying and other financial topics.\r\n\r\nArturo is a bilingual native in English and Spanish, and also writes as a freelance journalist for NBC News, among other publications. His articles have been published in Fusion, Univision, City Limits, the NACLA Report on the Americas and WhoWhatWhy, as well as La Opinión A Coruña newspaper in Spain.","additionalMeta":{"expertise":"Financial Planning, Retirement Planning, Investment Planning, Tax Planning","__typename":"User_Additionalmeta"},"email":null,"firstName":"Arturo","fullName":"Arturo Conde, CEPF®","lastName":"Conde, CEPF®","name":"Arturo Conde, CEPF®","postCount":{"pageInfo":{"offsetPagination":{"total":38,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"aconde","__typename":"User"},"reviewedBy":null,"writtenBy":null,"factCheckedBy":null,"secondEditor":null,"hideAuthor":null,"__typename":"Post_Multiplebylinesbyrole"},"adTargetingOverrides":{"fieldGroupName":"adTargetingOverrides","pageGroupNewKey":null,"__typename":"Post_Adtargetingoverrides"},"seo":{"canonical":"https://smartasset.com/taxes/california-earned-income-tax-credit","metaDesc":"The California Earned Income Tax Credit (CalEITC) is a state-level tax credit for low-to-moderate-income working individuals and families.","metaKeywords":"","metaRobotsNofollow":"follow","metaRobotsNoindex":"index","readingTime":6,"title":"What Is the California Earned Income Tax Credit?","__typename":"PostTypeSEO"},"slug":"california-earned-income-tax-credit","status":"publish","title":"What Is the California Earned Income Tax Credit?","uri":"/taxes/california-earned-income-tax-credit","tags":{"nodes":[],"__typename":"PostToTagConnection"},"__typename":"Post","adPageGroupOverride":null,"bylines":{"writtenBy":{"id":"dXNlcjo5OQ==","databaseId":99,"userId":99,"avatar":"$33","description":"Ashley Kilroy is an experienced financial writer currently serving as an investment and insurance expert at SmartAsset. In addition to being a contributing writer at SmartAsset, she writes for solo entrepreneurs as well as for Fortune 500 companies. Ashley is a finance graduate of the University of Cincinnati. When she isn’t helping people understand their finances, you may find Ashley cage diving with great whites or on safari in South Africa.","additionalMeta":"$34","email":null,"firstName":"Ashley","fullName":"Ashley Kilroy","lastName":"Kilroy","name":"Ashley Kilroy","postCount":"$35","slug":"ashley-kilroy","__typename":"User"},"editedBy":{"id":"dXNlcjoxMTc=","databaseId":117,"userId":117,"avatar":"$38","description":"Arturo Conde is a senior editor at SmartAsset. He has a master’s from the Graduate School of Journalism at Columbia University and a bachelor’s from the College of Arts and Science at New York University. As a certified educator in personal finance, he edits and writes content that focuses on retirement, investments, home buying and other financial topics.\r\n\r\nArturo is a bilingual native in English and Spanish, and also writes as a freelance journalist for NBC News, among other publications. His articles have been published in Fusion, Univision, City Limits, the NACLA Report on the Americas and WhoWhatWhy, as well as La Opinión A Coruña newspaper in Spain.","additionalMeta":"$39","email":null,"firstName":"Arturo","fullName":"Arturo Conde, CEPF®","lastName":"Conde, CEPF®","name":"Arturo Conde, CEPF®","postCount":"$3a","slug":"arturo-conde-cepf","__typename":"User"},"reviewedBy":null,"factCheckedBy":null,"secondEditor":null},"category":{"id":"dGVybToxMzY=","children":"$3d","databaseId":136,"categoryId":136,"link":"https://smartasset.com/taxes/articles","name":"Taxes","postCount":224,"slug":"taxes","ancestors":null,"parent":null,"__typename":"Category"},"isModifiedBeforePublished":true,"contentBlocks":["

","

A financial advisor can help optimize your financial plan to lower your tax liability.

","

What Is the California Earned Income Tax Credit?

","

The California Earned Income Tax Credit (CalEITC) is a state-level tax credit for low-to-moderate-income working individuals and families. The CalEITC is modeled after the federal Earned Income Tax Credit (EITC) but is specific to California. As a refundable tax credit, the CalEITC provides a payout if the filer owes no state taxes. Therefore, qualifying California residents always benefit financially from claiming it.

","

The credit amount depends on how many qualifying children the tax filer claims. For tax year 2023, a filer not claiming children will receive up to $285. Filers with one child will receive up to $1,900. Having two children increases the amount to $3,137, and three children raises it to $3,529.

","

Who Is Eligible for the California Earned Income Tax Credit?

","

California residents must meet the following criteria to qualify for the CalEITC:

","

Your annual income must be between $1 and $30,950.
You must be at least 18 years old or be the caregiver of a qualifying child.

","

Additionally, qualifying children must also meet the following criteria:

","

They must be your child, stepchild, foster child, sibling, step-sibling, or a descendant of any of those.
The child must also have the same principal residence as you in California over half of the tax year.
The child must be under age 19 at the end of the tax year.

","

Take note: If you have children who are a full-time students at least five months in a tax year, they can also qualify up to the age of 24. And those who are permanently and totally disabled could be included at any age.

","

How to Claim the California Earned Income Tax Credit?

","

","

You can claim the CalEITC by completing and submitting Form 3514 when you file state taxes. Attach the form to your California Form 540, Form 540 2EZ, or Form 540NR.

","

If you don’t have a Social Security number (SSN), you can provide your individual taxpayer identification number (ITIN). You’ll also need the SSN or ITIN of each of the qualifying children you claim. You’ll also provide your date of birth (if you’re filing jointly, your spouse’s date of birth as well).

","

You should have a clear understanding of your income level and dependent situation before claiming the credit. If you know you’re not eligible but try to game the system by claiming the credit, the state might disqualify you from claiming it for the next 10 years. Remember, the credit is for working households that need help to make ends meet.

","

If you realize you qualified for the CalEITC in past years but didn’t claim it, you might still be able to receive it. California tax laws allow filers to amend tax returns to receive missed credits.

","

Other Tax Credits

","

Qualifying for the CalEITC means you may be eligible for other tax credits when you file. First, California also provides a Young Child Tax Credit (YCTC). This credit provides up to $1,117 for households earning up to $30,931 with a qualifying child under six years old. Households with zero income and net losses up to $33,497 can also claim this credit since tax year 2022. Multiple children do not increase the credit amount.

","

Second, the federal earned income tax credit (EITC) works like the CalEITC but with different income thresholds. Basic qualifying criteria from the IRS includes:

","

You earned less than $63,398 in tax year 2023
Your investment income is $11,000 or less for tax year 2023
You must be a U.S. citizen or resident
You need a Social Security number on or before your tax return due date
If you’re separated and not filing a joint tax return, you must meet other rules
You don’t file Form 2555 to exclude foreign earned income
You’re someone else’s qualifying child for the EITC

","

For 2023, the EITC income limits are as follows:

","

# of Children	Single/Head of Household/Widowed filers	Married Filing Jointly	Credit amounts
3 or more	$56,838	$63,398	$7,430
2	$52,918	$59,478	Up to $6,604
1	$46,560	$53,120	Up to $3,995
No children	$17,640	$24,210	Up to $600

","

The federal government also provides a Child and Dependent Care Credit. If you paid for the care of a child under age 13 or a dependent adult, you can receive a $3,000 credit for one dependent or $6,000 for two or more dependents.

","

Similarly, you can claim the Child Tax Credit on your federal taxes. You can qualify for this credit if you have any dependent children under age 17. The credit can lower your taxes by up to $2,000 per child, and $1,600 of the credit is refundable for 2023.

","

Additionally, if you’re furthering your education or claiming a student as a dependent, you may qualify for the American Opportunity Tax Credit, which offers a maximum annual credit of $2,500.

","

Bottom Line

","

","

The CalEITC can provide financial support to low-to-moderate-income working individuals and families in the state. As a refundable tax credit, it ensures that qualifying California residents receive a payout, even if they owe no state taxes. The credit amount varies based on the number of qualifying children claimed, offering significant financial relief to eligible filers.

","

Tips for Claiming the California Earned Income Tax Credit

","$44","

Photo credit: ©iStock/monkeybusinessimages, ©iStock/VioletaStoimenova, ©iStock/Drazen Zigic

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Form 8949 is used to report the sale or exchange of capital assets, such as stocks, real estate, or cryptocurrencies to the IRS. It details the purchase and sale dates for each transaction, as well as the proceeds, cost basis and any adjustments. This information is then transferred to Schedule D, where gains or losses are totaled for tax purposes, with sections for short-term and long-term transactions. Accurate reporting on Form 8949 is essential for properly calculating capital gains or losses and complying with IRS requirements.

","

If you want to lower your taxes on investments, a financial advisor can optimize your portfolio to lower your tax liability.

","

What Is Form 8949?

","

Form 8949 is an IRS tax document used to report gains and losses from the sale or exchange of capital assets. The form captures detailed information about each transaction, such as dates the asset was acquired and sold, sales proceeds, cost basis and any necessary adjustments. These adjustments account for factors like disallowed losses from wash sales (selling a security at a loss and rebuying it or a substantially identical security to prevent the loss from being deducted for tax purposes) or adjustments related to inherited property.

","

One of the key purposes of Form 8949 is to categorize transactions by how they are taxed. It separates short-term gains or losses (from assets held for one year or less) from long-term gains or losses (from assets held longer than one year), which are taxed at different rates. Taxpayers must also indicate whether and how the transactions were reported to the IRS on Form 1099-B.

","

By requiring taxpayers to list individual sales, Form 8949 provides a comprehensive view of all taxable events, helping to ensure proper calculations when completing Schedule D.

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Who Needs to File Form 8949?

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Anyone who sold capital assets during the tax year may need to complete Form 8949, especially if the transactions are reported on Form 1099-B or 1099-S, or were not reported to the IRS at all. This includes:

","

Individuals selling stocks, bonds, cryptocurrency, or other capital assets
Homeowners who sold real estate that was not their primary residence

","

If there are multiple transactions, each needs to be listed, even if there were no profits earned. Any short-term or long-term capital gains or losses must be categorized based on how long the asset was held.

","

Completing Form 8949: Parts I and II

","

Form 8949 is divided into two parts to separate short-term and long-term transactions.

","

Part I is for short-term gains and losses, which apply to assets held for one year or less. Part II covers long-term gains and losses, applying to assets held for more than one year. This distinction is significant because short-term gains are taxed at ordinary income rates, while long-term gains generally benefit from lower, preferential tax rates.

","

Both parts of the form require taxpayers to report transactions based on whether the sales were reported on Form 1099-B. There are three checkboxes in both Part I and Part II:

","

Box A: For transactions reported on Form 1099-B with cost basis provided.
Box B: For transactions reported on Form 1099-B without cost basis.
Box C: For transactions not reported on Form 1099-B.

","

Accurately assigning transactions to the right part and box helps ensure proper tax treatment.

","

Once all transactions are listed, totals from both parts are carried over to Schedule D, where gains or losses are totaled. If the form includes adjustments (e.g., for wash sales), those must be listed in the adjustment column with appropriate codes.

","

Reporting Gains and Losses

","

","

Each line of Form 8949 requires detailed information about the asset sold, including:

","

Description of the asset: Specify the security, cryptocurrency or property
Date acquired: The original purchase date
Date sold or disposed: When the sale or transfer occurred
Proceeds: The amount received from the sale
Adjustments, if any: Adjustments can be made for things like transaction fees or wash sales

","

After listing these details, subtract the cost basis from the proceeds to determine the gain or loss, which you will then list in column (h). Note that wash sale rules may apply if a similar asset was bought shortly before or after selling the original one, disallowing the loss for that year.

","

When to Use Adjustment Codes

","

In some cases, an adjustment to the gain or loss is necessary. For example, if a broker didn’t report the correct cost basis on the 1099-B or a wash sale occurred, adjustments will need to be reported on Form 8949.

","

Common adjustment codes include:

","

Code W: For a wash sale
Code B: When the basis reported by the broker on Form 1099-B is incorrect
Code O: For cases involving adjustments not covered elsewhere
Code T: You received a Form 1099-B (or substitute statement) and the type of gain (or loss) shown in box 2 is incorrect

","

If an adjustment is made, enter the appropriate code in column (f) and the amount of the adjustment in column (g).

","

Transferring Totals to Schedule D

","

Once all transactions are listed and gains or losses are calculated, the totals from Part I and Part II of Form 8949 need to be carried over to Schedule D. This form summarizes the overall net capital gains and losses, distinguishing between short-term and long-term transactions.

","

If the total capital losses exceed gains for the year, taxpayers can deduct up to $3,000 ($1,500 for married individuals filing separately) of the loss against other income. Any remaining losses can be carried forward to future tax years.

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Bottom Line

","

","

Form 8949 plays a role in organizing and reporting the sale of capital assets, giving taxpayers a way to track gains and losses while meeting IRS requirements. By listing each transaction, including purchase and sale dates, proceeds and cost basis, it helps determine taxable amounts and provides space for adjustments, such as wash sales or discrepancies in 1099-B data. Transferring these totals to Schedule D offers a summary of short-term and long-term gains or losses, allowing for proper calculation of taxes owed or deductions available.

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Tax Planning for Investments

","$5c","

Photo credit: ©iStock.com/PixelsEffect, ©iStock.com/shih-wei, ©iStock.com/Apiwan Borrikonratchata

"],"experts":null,"link":"/tax-filing/form-8949","published":{"datetime":"2024-10-31","readable":"October 31, 2024"},"shareInfo":{"title":"How to Fill Out Form 8949 for the Sale of Capital Assets","origin":"/taxes/form-8949"},"isNewsArticle":true},{"id":"cG9zdDoyNjY1NjU=","databaseId":266565,"postId":266565,"author":{"node":{"id":"dXNlcjoz","databaseId":3,"userId":3,"avatar":{"url":"https://secure.gravatar.com/avatar/47938df052bf0a5283bd6b77ab786737?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"SmartAsset employs a team of writers and editors with years of experience in the editorial, news and personal finance industries. Some staff members also hold the Certified Educator in Personal Finance (CEPF®) designation from the Institute for Financial Literacy.","additionalMeta":{"expertise":null,"__typename":"User_Additionalmeta"},"email":null,"firstName":"Michael","fullName":"SmartAsset Team","lastName":"Carvin","name":"SmartAsset Team","postCount":{"pageInfo":{"offsetPagination":{"total":1417,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"mcarvin","__typename":"User"},"__typename":"NodeWithAuthorToUserConnectionEdge"},"categories":{"nodes":[{"id":"dGVybToxOTUwNw==","children":{"nodes":[],"__typename":"CategoryToCategoryConnection"},"databaseId":19507,"categoryId":19507,"link":"https://smartasset.com/tax-filing/articles","name":"Tax Filing","postCount":{"pageInfo":{"offsetPagination":{"total":100,"__typename":"OffsetPaginationPageInfo"},"__typename":"CategoryToPostConnectionPageInfo"},"__typename":"CategoryToPostConnection"},"slug":"tax-filing","ancestors":{"nodes":[{"name":"Taxes","slug":"taxes","__typename":"Category"}],"__typename":"CategoryToAncestorsCategoryConnection"},"parent":{"node":{"name":"Taxes","id":"dGVybToxMzY=","slug":"taxes","__typename":"Category"},"__typename":"CategoryToParentCategoryConnectionEdge"},"__typename":"Category"}],"__typename":"PostToCategoryConnection"},"content":"$5d","date":"2024-10-27T16:45:35","excerpt":"

Hiring a nanny can provide much-needed support for families, but it also comes with specific financial responsibilities. One of those responsibilities is the “nanny tax,” a federal requirement that applies to families who employ household workers, including nannies, caregivers and housekeepers. As of 2024, if you pay your household worker $2,700 or more in a […]

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As a certified educator in personal finance, he edits and writes content that focuses on retirement, investments, home buying and other financial topics.\r\n\r\nArturo is a bilingual native in English and Spanish, and also writes as a freelance journalist for NBC News, among other publications. 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","

A financial advisor can help you understand your tax obligations, manage payroll taxes and make sure that your taxes are filed correctly.

","

What Is the Nanny Tax?

","

The nanny tax refers to the federal and state taxes that employers must pay for household employees. If you hire a nanny and pay them over a certain threshold, you are considered their employer and must withhold and pay certain taxes on their behalf, along with the employer’s share of payroll taxes. The tax mainly includes Social Security and Medicare taxes (also known as FICA taxes), federal unemployment tax (FUTA) and possibly state-level employment taxes.

","

The IRS sets the threshold for when you must pay the nanny tax. In 2024, if you pay your household employee $2,700 or more in wages during the year, you are required to withhold and pay these taxes. It’s important to note that this tax applies whether the nanny is working part-time or full-time.

","

Who Pays the Nanny Tax?

","

The nanny tax is primarily the responsibility of the household employer, meaning the individual or family that hires the nanny. The employer must calculate and withhold the appropriate amounts from the nanny’s paycheck for Social Security and Medicare taxes. These taxes are split evenly between the employer and the nanny, with each contributing 7.65% of the nanny’s wages. Additionally, the employer is responsible for paying the full amount of the federal unemployment tax (FUTA) and, in some cases, state unemployment insurance taxes.

","

It’s important to distinguish between independent contractors and employees. Nannies, by definition, are considered household employees, not independent contractors, which is why the household employer must pay these taxes. Misclassifying a nanny as an independent contractor could result in penalties and back taxes.

","

How to Calculate Nanny Taxes

","

","

Calculating the nanny tax will require you to determine the wages paid to your nanny and apply the correct tax rates. Here’s a step-by-step breakdown:

","$74","

Reporting and Paying Nanny Taxes

","

Once you have calculated the nanny taxes, you must follow the proper steps to report and pay them. The IRS requires household employers to file a Schedule H (Household Employment Taxes) with their personal federal income tax return. This form helps report all of the Social Security, Medicare and FUTA taxes you owe for your nanny.

","

Throughout the year, you will also need to withhold the correct amounts from your nanny’s paycheck and pay those taxes on a regular basis, typically quarterly. Many employers choose to work with a payroll service that specializes in household employees to manage these withholdings and payments, ensuring compliance with all tax laws.

","

For state unemployment taxes, you may be required to file a separate return with your state’s tax authority, so be sure to check local rules. Some states may require quarterly filings, while others may only need an annual return.

","

Exceptions to the Nanny Tax and Special Considerations

","

Not every household worker is subject to the nanny tax. There are some exceptions to be aware of:

","

Family members: If your nanny is a close relative (and childcare is not their primary occupation), such as your child (under age 21), spouse or parent, you may not be required to pay the nanny tax.
Employees under 18 years of age: If your nanny is under the age of 18 at any time during the year, you may not need to withhold Social Security and Medicare taxes, unless the housework performed is their principal occupation.
Wages below the threshold: If you pay your nanny less than the annual threshold set by the IRS ($2,700 in 2024), you are not obligated to withhold or pay Social Security and Medicare taxes. However, you may still be responsible for unemployment taxes, depending on state laws.
Non-cash payments: If you provide your nanny with non-cash benefits, such as room and board, these can often be excluded from wages for the purpose of calculating taxes.

","

It’s also important to remember that the nanny tax applies to all household employees, not just nannies. If you hire a housekeeper, gardener or any other worker in your home, you may need to follow similar tax rules.

","

Penalties for Non-Compliance

","

Failing to pay or properly report nanny taxes can lead to several serious consequences. The IRS may impose back taxes, interest and fines on unpaid amounts if household employers do not fulfill their tax obligations. In addition to these financial penalties, employers may also face additional legal fees and potential audits.

","

Employers who attempt to pay their nanny “under the table” to avoid taxes are at particular risk. If discovered, this could result in more severe penalties, including the payment of back taxes and interest, plus fines for tax evasion. In some cases, employers might be held liable for unpaid Social Security and Medicare taxes owed by the nanny, further increasing the financial burden.

","

To avoid these issues, it’s important to handle all tax matters related to household employees transparently and in accordance with federal and state regulations.

","

Bottom Line

","

","

Understanding and managing nanny taxes is an important part of hiring household employees. By familiarizing yourself with the tax requirements and learning how to handle withholdings for Social Security, Medicare and unemployment taxes, you can meet your obligations as an employer. Knowing the thresholds and exceptions helps ensure that you’re in compliance with federal and state laws. While it may seem complex at first, taking the necessary steps to calculate, report and pay these taxes can help you avoid penalties and maintain a professional, legal arrangement with your household employees.

","

Tax Planning

","$75","

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If you paid Uncle Sam more than his fair share in payroll taxes in 2023, you may be owed a refund. In 2023, you would have paid a combined 7.65% in payroll taxes on all employment-based earnings up to the annual limit. But if you worked two relatively high-paying jobs, there’s a chance that a […]

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Patrick studied English at the University of New Hampshire and currently holds the Certified Educator in Personal Finance (CEPF) designation. \r\n\r\nPrior to joining SmartAsset, Patrick was a senior writer at MagnifyMoney, where he covered investing. His career began in journalism and included 11+ years at The Jersey Journal, where he covered sports and news as an editor. His work has appeared on Yahoo Finance, MSN, NJ.com, and The Star-Ledger. 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If you paid Uncle Sam more than his fair share in payroll taxes in 2023, you may be owed a refund.

","

In 2023, you would have paid a combined 7.65% in payroll taxes on all employment-based earnings up to the annual limit. But if you worked two relatively high-paying jobs, there’s a chance that a portion of your combined income was subject to payroll taxes when it shouldn’t have been.

","

This can happen to workers who hold multiple jobs with employers who don’t know to scale taxes based on third-party employment. Here’s what you need to know about getting your money back. And if you need help making your after-tax income work for you, consider speaking with a financial advisor.)

","

What Are Payroll Taxes?

","

The payroll or FICA tax comprises two primary components: the Social Security tax and Medicare tax Workers pay 6.2% in Social Security tax and another 1.45% in Medicare tax, for a combined flat rate of 7.65% on all eligible income. Employers then pay a matching 7.65% tax on eligible income for each employee. Self-employed individuals pay both sides of this tax, for a combined 15.3% tax rate known as the self-employment tax.

","

For example, say that you have a salary of $100,000. You would owe $7,650 in FICA taxes and your employer would also owe $7,650 on your behalf.

","

Social Security taxes are applied to all income and earnings up to an annual cap, which is adjusted each year for inflation. In 2024, this cap is set at $168,600 (up from $160,200 in 2023). That means you won’t owe any Social Security tax on income above this limit. The Medicare tax, on the other hand, has no income cap and applies to all earned income.

","

Finally, high-earning individuals are subject to the Additional Medicare Tax, an extra 0.9% applied to all income above $200,000 ($250,000 for married couples filing jointly).

","

For example, say that you earned $250,000 in employer-based income in 2023. You would have paid the following in FICA taxes:

","

Social Security Tax: $9,932 ($160,200 * 6.2%)
Medicare Tax: $3,625 ($250,000 *1.45%)
Additional Medicare Tax: $450 ([$250,000 – $200,000] = $50,000 * 0.9%)
Total FICA Taxes: $14,007

","

How Can You Overpay FICA Taxes?

","

Any employer is required to withhold an employee’s FICA taxes and pay a contributory amount. Depending on the circumstances, this can lead to a worker paying too much Social Security tax or total FICA taxes.

","

Overpaying Social Security taxes occurs most often when a worker has multiple streams of income. An employer will withhold FICA taxes based on the worker’s salary or wages, without knowing about any external sources of income. This can lead to a worker earning more than the Social Security tax’s annual cap and paying taxes on the entire amount.

","

Overpaying combined FICA taxes occurs most often in situations known as “misclassification.” This is when an employer engages a self-employed worker in the same way as they would an employee, getting the value of an employment relationship (typically defined as control, access and exclusivity) without paying the related taxes. The result is that a worker overpays their FICA taxes by 50% – the amount that their employer should have paid on their behalf.

","

For example, say that you have two jobs, each paying you $100,000 per year. Each employer would likely withhold the full 6.2% in Social Security taxes, as both income streams would be below the tax’s cap. However, the result is that you would pay 6.2% on $200,000 in income, well above the cap. But if you need more help sorting out your taxes, consider finding a financial advisor with tax expertise.

","

What Do You Do If You Overpay FICA Taxes?

","

","

If you have overpaid FICA taxes, the remedy will depend on the circumstances.

","

For misclassified workers, you’ll need to file for unpaid or inaccurately collected FICA taxes with the IRS. Most workers will use Form 8919 to alert the IRS that their income is not subject to the self-employment tax despite a 1099 earnings form.

","

For workers at risk of overpaying Social Security taxes due to excess earnings, a good first step is to conduct a periodic “paycheck checkup,” essentially confirming that your withholding matches your overall earnings. This can help you determine your correct tax payments during the year, so that you can adjust your withholding with a given employer.

","

If you’ve already overpaid Social Security taxes and have just one employer who withheld taxes on income above the earnings cap, you can first request a refund directly from your employer. If they fail to return your withheld taxes, you’ll file a Form 843 to request a refund and tax abatement going forward.

","

If you have multiple employers and had Social Security taxes withheld above the cap based on your combined income, you can file for a refund on line 11 of your annual 1040. This is called a Social Security tax refund. If you’re eligible, the Social Security overage will be applied directly to your income taxes, either reducing your bill or increasing your refund. And if you’re interested in investing this year’s tax refund, a financial advisor can help.

","

Bottom Line

","

If you overpaid your Social Security taxes in 2023 due to withholding on net income above the tax’s cap, you can get a refund for the excess payments. For workers who had more than one job, you will typically do this as part of your annual taxes on your 1040.

","

Tips On Managing Your Taxes

","$88","

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