Before you send off your 2003 tax return, make sure you didn't overpay the required amount of FICA taxes. For 2003, the Social Security rate is 6.2 percent on the first $87,000 in wages. The 1.45 percent Medi-care tax rate applies to all your wages. Together, those make up the 7.65 FICA tax.
Here are some options for recovering any excess tax you paid:
Claim a credit. You may accidentally overpay Social Security taxes if you work for more than one company during the year. It's up to you to notice if you've paid Social Security tax up to the $87,000 income threshold. Claim a credit for any excess payment on Line 62 of Form 1040.
Receive a refund from your company. Let's say that while you're completing your 2003 return, you discover that your company mistakenly withheld more FICA tax than you owe. In that case, you can't take a credit on Form 1040. The employer must provide an adjustment. So if your company withheld $500 more in FICA than it should have, arrange for a one-time $500 increase in your next paycheck.
Offset self-employment tax with job wages. If you have a sideline business, as well as wages earned from your company, you can reduce your self-employment tax bill. Let's say you had wages of $87,000 from a full-time job and $20,000 of net income from a sideline business in 2003.
Although the Medicare portion of the tax applies to all wages and self-employment income, only the first $87,000 of wages is subject to the Social Security portion. So the total self-employment tax, including the employee and employer portions, is just $580 (2.9 percent multiplied by $20,000). Extra benefit: You can deduct half of the self-employment tax.
- Small Business Tax Deduction Strategies No matches