Excess Social Security Withholdings with same PEO

pzpzpzp1

I had 2 jobs but both jobs use Sequoia PEO for payroll services. That means I only get one W2 form AND Sequoia needs to withhold social security tax up to the 10,918 limit for 2025 for BOTH companies. As a result, they have in aggregate withheld a lot of excess social security.

FreetaxUSA is not reading this situation correctly and has not placed anything in Schedule 3 for crediting me back the excess. FreetaxUSA's recommendation is to go back to the employer because it thinks that I had one employer, but in fact I had two. I have combed the IRS.gov website documentation on this.

In the exceptional case that one PEO handles two jobs for one employee and withholds excess social security, it should be credited back through Part ii, box 11 "Excess social security and tier 1 RRTA tax withheld". IRS instructions explicitly say this is not a case where you go back to the employer or the PEO to resolve. FreetaxUSA is not filling in that box correctly. This is a bug in the software. How can I get this fixed?

MatthewD

Hi pzpzpzp1,

A test of our software shows that the software correctly handles this situation when two or more W-2s, for the same person, are entered and there is excess social security tax withheld. However, when you have just one W-2, then this is an employer issue and you should contact them to make the correction. Here is the alert you may have received if you only entered entered one W-2.

"Usually your Social Security tax withheld will be 6.2% of your Social Security wages in Box 3, with a maximum of $10,918.
If you need to make changes, go back to the Wages (Form W-2) screen.
If this is correct, contact your employer and request that they refund the excess Social Security tax back to you."

I recommend you contact Customer Support and ask a tax specialist to look at your account and return. And contact your payroll service to make a correction and refund excess SS withholdings.

pzpzpzp1

Hi MatthewD,

Regarding your statement: "when you have just one W-2, then this is an employer issue and you should contact them to make the correction"

I am referencing irs.gov writing and believe you are mistaken. You have not accounted for the situation I described above where the one W2 comes from a PEO representing two jobs. See the irs.gov link in particular 21.6.3.4.2.4 the section pertaining to "Excess Social Security and Railroad Retirement Tax Act (RRTA) Tier I Tax Credits"

https://www.irs.gov/irm/part21/irm_21-006-003r#id85

If you follow the If-Then logic in box 1 of that section, you will see the Exception case: "Exception: If the issuer of the W-2 is a Professional Employer Organization (PEO) or Certified Professional Employer Organization (CPEO) (a payroll processing company) follow the procedures in the last If/Then below."
And if you follow that exception box to the last if/then the irs.gov instructions are that "The employee can claim a credit for excess social security or RRTA Tier I tax"

So according to the IRS when one W2 is filed with excess social security contribution AND the W2 comes from a PEO like Sequoia, then the excess should be filled out in Part ii, box 11. NOT by seeking refund through the PEO. Can you let me know how to correct this in the FreeTaxUSA software?

MatthewD

Hi pzpzpzp1,

Thank you for the information. I will pass it along to our team for review and follow up when we have an answer. In the meantime, you may want to contact your payroll company to express your concerns and seek a refund for the excess.

Also, I recommend you contact customer support while signed into your account so a support agent can take a look at your W-2 and return so we have a complete picture of what is going on.