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3 ways you can recoup excess employment taxes

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in Small Business Tax,Small Business Tax Deduction Strategies

Are you finishing up your 2007 tax return? Make sure you didn’t overpay Social Security tax. The tax rate for 2007 was 6.2% on the first $97,500 of wages. The 1.45% Medicare tax applies to all wages. These rates are doubled for self-employeds.

Here are three ways to recoup excess payments:

1. Claim a tax credit. You may have overpaid Social Security tax if you worked for more than one employer last year. Claim the credit on Line 67 of 2007 Form 1040.

2. Obtain a refund. If you discover your company overwithheld tax, you can’t take a credit on Form 1040. Instead, seek an adjustment from your company. For instance, if you overpaid $500 in Social Security tax, the $500 excess may be included in your next paycheck.

3. Offset self-employment tax. If you operated a sideline business, the Social Security tax withheld on wages from your regular job can reduce your self-employment tax bill.

Example: You earned $100,000 from your regular job and $30,000 from your sideline business. Because your wages exceeded the 2007 Social Security wage base of $97,500, you only owe the Medicare portion of self-employment tax or $870 (2.9% of $30,000).

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