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The Moonlighting Penalty: Incidence of the Excess Social Security Tax

Lafayette College

The social security tax is levied on wages and salaries up to a maximum annual amount,with employee and employer each paying the same amount of tax on the employee's behalf.Workers earning more than the annual maximum taxable earnings and having morethan one employer are vulnerable to excess social security tax withholding. The employee'sshare of excess social security tax can be claimed as a (refundable) creditagainst the federal individual income tax, but the employer's share cannot be claimed. Ifthe employer's share of the social security tax is borne by the worker, then the unrefundedexcess employer's tax is an additional tax on the worker. This additional tax is highly progressive,and its progressivity has increased in the past four decades.

Key Words: social security • employer's contribution • excess social security contribution • credit • overwithholding

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