Excess Social Security when paid via w2 and 1099

[ylevine]

Lets say we have w2 employment that well exceeds social security withholdings. Taxpayer also receives significant commission income via 1099 to his LLC. There should not no Social Security liability on the 1099 earnings as the max was already met, only a Medicaid liability.

1. How does Intuit manage this situation in turbo tax desktop?

2. If the return was previously fiied and extra social security was paid for the LLC income, I suspect a form 843 needs to be submitted (and not an an amended return). Does Turbo Tax support this?  

[VolvoGirl]

Is the LLC a S corp or reported on Schedule C in the personal tax return?  Turbo Tax handles the excess SS.  And will calculate the proper SE tax.  But the W2 and Schedule C has to be both under the same person/name.

The SE tax includes what you already paid in from your W2s so your schedule SE tax will only be the difference up to the max amount of $9,114.00 for social security. The max income for social security for 2022 is $147,000 between W2 wages and the schedule C Net Profit.  If you also have W2 income, you have to break out the Social Security and Medicare taxes. Only the Social Security part maxes out.

For 2022 the max for Social Security is $9,114.00 on $147,000 of wages (147,000 x 6.2%).

For 2023 the max for Social Security is $9,932.40 on $160,200 of wages (160,200 x 6.2%).

Medicare is 2.9% (both er & ee parts) of all wages and  92.35% of Schedule C Net Profit - no max.

[ylevine]

LLC was reported as a schedule C and the owner of the LLC was one of the tax payer of  w2 tax payer that exceeded the income. Turbo Tax did not recognize that for this person the max of SS had been met.

[Opus 17]

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@ylevine wrote:

LLC was reported as a schedule C and the owner of the LLC was one of the tax payer of  w2 tax payer that exceeded the income. Turbo Tax did not recognize that for this person the max of SS had been met.

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There's a "we" in your question that concerns me.  In most cases, an LLC with 2 or more members must report their taxes differently, and not on schedule C.  This may need clarification.  

I will assume here that "John" has a W-2 job with maximum social withholding; "Mary" has a W-2 job; and John has a single-member LLC filing as a disregarded entity on schedule C.  The net profit from schedule C goes to schedule SE, but because John has already paid the maximum social security amount, John will pay 2.9% self-employment tax (Medicare only) instead of 15.3% self-employment tax.  

If John is being assessed the full 15.3% SE tax, here are some things to check.

1. Did you create the schedule C under John's name? Make sure the schedule C and SE are under the name of the LLC owner and not the other spouse.

2. Did you enter the W-2s correctly, John under John's name and Mary under Mary's name?

If the LLC is mistakenly under Mary's name, or if both W-2s are mistakenly under Mary's name, the program won't recognize that John has paid the full SS withholding.

3. If you have not entered the W-2s yet, or not entered them correctly, John may be assessed SE tax, which will be recalculated if you enter John's W-2 later.

[VolvoGirl]

Are you married?  That suggests the Schedule C was not assigned to the same person as the W2.  And the SS max is for each person not combined.  Did you look at Schedule SE?  What lines look wrong?  

[rjs]

It's not really a question of TurboTax managing the situation. Schedule SE takes into consideration the Social Security wages (and Social Security tips, if applicable) in boxes 3 and 7 of the W-2. It applies the maximum Social Security earnings to the sum of the amounts from the W-2 and Schedule C. TurboTax just follows the IRS instructions for calculating the self-employment tax on Schedule SE.

Take note of what VolvoGirl and Opus 17 said. You have to make sure that the W-2 and Schedule C are both assigned to the same person. TurboTax does not look at the name on the W-2. When you entered your W-2s you had to select which person each W-2 was for. Go back to the W-2 summary and look at the name associated with each W-2. Make sure they are correct. Also make sure that boxes 3 and 7 of the W-2 are entered correctly. And make sure that the correct person's name is at the top of Schedule C.

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@ylevine wrote:

Turbo Tax did not recognize that for this person the max of SS had been met.

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What exactly makes you think that TurboTax "did not recognize" that the person with the Schedule C income paid the maximum Social Security tax? What is the exact amount on Schedule SE line 8d? What specifically do you think is wrong on Schedule SE? What is the exact amount in box 3 of the person's W-2.

TurboTax does not support Form 843, but you should not need it.

[Mike9241]

calculation of the SE tax is done on form 1040-SE where the taxpayer's w-2 earnings (line 8a) are taken into account. Just make sure you denote the correct taxpayer for the w-2s/1099s. the Turbotax default is to use the first taxpayer listed on the 1040 for the w-2/1099. there is a checkbox if they're for the spouse.

[ylevine]

There are 2 Schedule C forms. One for each tax payer in addition to each(husband and wife) having a W2.  Its not picking it up.  

[VolvoGirl]

Do you also have 2 Schedule SE?  One for each taxpayer.  Does their W2 wages show up on it line 8?  Sounds like you might have both Schedule C listed for the same person and not matching the W2s.   And again the SS max is for each person's income, not combined.  

How much is each Schedule C profit?

How much is each W2 box 3?

Please list for each spouse.

[rjs]

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@ylevine wrote:

Its not picking it up.  

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You have to explain the problem in a lot more detail. Exactly what is "it" that's not picking something up, what is "it" that is not being picked up, and what do you mean by "picking up"? You have to be very clear about which spouse has too much self-employment tax, and which spouse each W-2 and Schedule C is for. For each spouse, give specific form names and line numbers, and exact amounts. Tell us which amount you think is wrong, what it should be, and how you calculated the correct amount.

Did you check to make sure that each W-2 was entered for the correct person, that the amounts on each W-2 were entered correctly, and that the correct person's name is at the top of each Schedule C?