IRS letter questioning excess social security calculation

[Flanda]

We have three W2s for 2023 (downloaded directly into TurboTax), all for the same person but two of them (with the same EIN) are from a settlement fund from the same company as the third W2, which has it's own EIN. Collectively, the SSN tax withheld is over the SSN limit for the year, but the IRS claims that the submitted W2s do not support this. In reading the TurboTax Schedule 3, Line 11 smart worksheet, it says that for the two W2s with the same EIN/person/company I must reduce the amount calculated by the excess withholding from those W2s. Can anyone explain why this TurboTax worksheet says to reduce it and by how much, when it already knows that we paid the max SSN?

It concerns me that this question suggesting that I check this did not come up in the final review before the filing. 

[Mike9241]

$160,200 is the maximum Social Security wages for one taxpayer in 2023 at 6.2% the maximum Social Security taxes would be $9932.40.  if an employer takes out more than this your options are to seek recovery of the excess from the employer or get a letter from the employer saying they won't refund the excess. In that case, you must file form 843 with the IRS

read the instructions

https://www.irs.gov/site-index-search?search=843&field_pup_historical_1=1&field_pup_historical=1 

Turbotax does not compare EINs on the W-2s. it only checks whether it's the taxpayer's w-2 or the spouse's w-2. 

another question is why were 2 w-2's issued by the same settlement company?

[Flanda]

Thank you for your response Mike.

There were two separate disbursements from the settlement at different times during the year. The second was indicated as "residual fund disbursement".

Both W2s in question are for my spouse. We file jointly and I have no W2s. She has already met the social security payment  maximum as indicated in her other regular (non-settlement) W2 (same employer, same name), thus the excess from the two settlement W2s.

Regarding the  options you mention, the thing is that I already claimed the excess as calculated, reviewed and efiled by TurboTax. Now the IRS is questioning this claim. My concern is why would TurboTax  not flag this during the review stage if checking the EINs is an important condition to claiming the SSN excess, especially  since TurboTax doesn't check them as you say. 

I am only now learning about this after filing my return because of the IRS letter and then finding the TurboTax notes on the 1040/1040SR Worksheet that I need to check this.  It's not very helpful now. 

So I believe my only option right now is to prove to the IRS that this claim is indeed an excess and it has been correctly credited. Hopefully they will agree. 

Maybe TurboTax should compare the EINs or at the very minimum prompt the user as a "needs review" item and explain this better before the return is actually efiled.

Thanks again.

[Opus 17]

It would appear that if you have 2 (or 3) W-2s from the same employer, the employer is required to stop SS withholding when you reach the cap, or refund the excess.  The IRS is telling you to go after the employer, instead of trying to get the funds from them. 

[Flanda]

I see what you are saying and I agree. The issue here is that there are three W2s for the same person (SSN)

W2 #1: spouse's name and ssn, employer EIN, SS tax withheld $9932.40

W2 #2: spouse's name and ssn, settlement fund EIN different from employer EIN (even though settlement is from employer), ss tax withheld.

W2 #3: spouse's name and ssn, same settlement fund EIN as W2 #2, ss tax withheld.

Why the settlement fund W2s show an ssn tax withheld is beyond me, but because they do and for the same person (SSN). Turbotax calculated an excess SSN tax paid in the amount of W2 #2 and W2 #3 but did not ask me to validate the EINs or review or question my spouse's employer.  Is TurboTax correct?  If so, I now need to prove to the IRS that TurboTax was correct, am I right?

[Hal_Al]

How much is in box 4 of each of the W-2s?

How much did the IRS disallow?

[Opus 17]

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@Flanda wrote:

I see what you are saying and I agree. The issue here is that there are three W2s for the same person (SSN)

W2 #1: spouse's name and ssn, employer EIN, SS tax withheld $9932.40

W2 #2: spouse's name and ssn, settlement fund EIN different from employer EIN (even though settlement is from employer), ss tax withheld.

W2 #3: spouse's name and ssn, same settlement fund EIN as W2 #2, ss tax withheld.

Why the settlement fund W2s show an ssn tax withheld is beyond me, but because they do and for the same person (SSN). Turbotax calculated an excess SSN tax paid in the amount of W2 #2 and W2 #3 but did not ask me to validate the EINs or review or question my spouse's employer.  Is TurboTax correct?  If so, I now need to prove to the IRS that TurboTax was correct, am I right?

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Sorry I need to ask for clarification, your statement is a bit confusing.

What I would expect Turbotax to do is to look just at the EIN, and assume you have two different employers.  If #1 shows SS tax of $9932, that is correct as far as it goes.  Because turbotax thinks you have two employers, it would request the excess (#2 and #3) from the IRS.  Or, if #2 plus #3 withheld more than $9932, turbotax would ask for $9932 from the IRS, and tell you to get the rest from the second employer.

Apparently, the IRS knows (which Turbotax did not) that both employers are the same, and you must request your refund from the employer rather than on your tax return.

I don't think this is a turbotax problem. It's not clear to me that Turbotax would have any way of knowing that the two EINs belonged to the same ultimate employer.  The IRS knows that, but I don't know if that is something Turbotax can look up, even if it was designed to (which I don't know.)