An employee who has exceeded the Social Security wage base may take a credit against federal income tax on Form 1040.

• A. Apply the Social Security tax to next year's withholdings
• B. Apply the overage to benefits paid at age 65
• C. Take a credit against federal income tax on Form 1040
• D. Demand a refund

Answer: (C)

Excess Social Security tax withheld because of multiple employers can be used as a credit against your federal income tax on Form 1040. Social Security tax is 6.2% of wages up to the annual wage base. When you work for more than one employer, each employer may withhold this tax on their portion of your wages, and the total withheld can exceed the wage base. The overwithheld amount isn’t applied to future withholdings or to benefits; instead, you claim it as a credit against your federal income tax on your tax return. This reduces the tax you owe for the year. For example, if the wage base is 120,000 and total Social Security tax withheld is more than 7,440 (0.062 × 120,000), the excess can be claimed as a credit on Form 1040.