Accepted Answer

Hello again boogey,

Okay, here is what I think for certain has happened.

Social Security tax must be paid on wages that you earn at a rate of 6.2%. The SS tax only applies to the first $97,500 you have in earnings (that was the limit in 2007). Anything you earned over that amount is not subject to any more SS tax withholding.

Sometimes when a taxpayer works more than one job, if their combined earnings exceeds $97,500, then they would have paid in too much SS tax. The reason this would happen is that each employer will tax you separately on your earnings. Let me first give you a simple example.

Suppose that you worked Job A and earned $50,000 for the year. The employer would withhold $3,100 from your check for SS tax. And suppose you also worked Job B and earned another $50,000 for the year. That employer would also withhold $3,100 from yur check for SS tax. On your two jobs combined you ended up paying SS tax on a total of $100,000 in earnings, when you really only needed to pay on the first $97,500 in earnings. So it ends up you overpaid your SS tax on $2,500 of earnings at 6.2%, and you would be entitled to a refund of $155.

The figures that you gave me for your income and your wife's income show that neither of you reached the $97,500 limit, so all of your earnings would have been subject to SS tax, and no refund would have been due. HOWEVER, if you take the earnings from all 3 of those W-2 forms, they add up to:

$47,128 plus $66,310 plus $36,277 = $149,715. If that entire $149,715 had been earned by just you alone, then you would have overpaid SS tax on $52,215 of those earnings. At a rate of 6.2%, that would have entitled you to a refund of $3,237 on the SS taxes withheld from your checks.

I think when you entered the 3 W-2 forms in to Turbo Tax you must have showed that all 3 of the forms were issued to either you or your wife. This is the only way the error could have occurred, and the figures are just too exact for this not be what happened here. And I can see how this could easily happen.

When you start the interview process with Turbo Tax, it will ask you for the first taxpayer that you want to report income for. You enter Joe Smith. You then enter the informatin from the first W-2 form for Joe Smith. When you are done entering that information, TT then asks you if you have another W-2 you need to enter, and you say "yes". You then proceed to enter the second W-2 form for Joe Smith.

I think in your case you entered all 3 W-2 forms under either your name or your wife's name, without choosing to switch taxpayers. The total income you reported as taxable would still be the same. But it would have a huge affect on the amount of SS tax withheld, because of the circumstances I presented above. TT now thinks that since one individual earned all of the money from all 3 W-2 forms, that individual is due a refund of $3,237, and it lists that amount as a credit due to you on line 67 of your tax return.

Now that the IRS has reviewed your return, they see that the income actually was earned by two different people, and so no overpayment of SS taxes was involved. That is why they now want you to repay the $3,237 claimed as a credit.

If you had the worksheets from TT, there would be a worksheet in the package that showed you how much income they reported under each name. I am 100% certain that you would find all of this income was reported as being earned either by you or your wife, instead of it being split between the two of you. If the W-2's had actually been entered as two for you and one for your wife, TT could have never made this error.

If this was helpful please press the Accept button. Positive feedback is also appreciated.

Thank you boogey, and let me know if you have more questions.

Expert:	Merlo
Pos. Feedback:	99.8 %
Accepts:
Answered:	9/12/2009

Accountant

25+ years tax consulting. Specializing in returns for US citizens living abroad