When it comes to taxes, you would probably – and rightfully – guess that the majority the United States government collects are income taxes. However, you may not realize how big the piece of the pie is for payroll taxes.  In 2012, the Congressional Budget Office calculates that of the $2.3 trillion in revenue – 35.6% came from payroll taxes, almost $82 million! That is a huge number!

Payroll taxes consist mainly of Federal Insurance Contributions Act (FICA) taxes or Social Security and Medicare taxes.   The rates are as follows:

• Social Security – 12.4% for wages up to $113,700 (employer and employee each pay half)
• Medicare – 2.9% on all wages  (employer and employee each pay half)
• Additional “Obamacare” Medicare Tax of 0.9% on wages above $200,00 for single filers, $250,000 for joint filers

But what happens if you have two jobs?  If one employer pays you $100,000 and another pays you $80,000.

Answer. You will pay too much in social security taxes.  Individuals have an easy solution.  You can take a credit on your 1040 for the excess social security or you can file a claim for refund using Form 843.

But, what about the poor employers?

They are also paying the government more in social security tax than the government deserves.  In the two employer scenario, above, it is generally a windfall for the government.

I wonder if lawmakers would like to close this “loophole”?  Probably not.

There is an important exception, however, for asset acquisitions.  Basically, the exception comes into play when the assets of a business are sold to another company mid-year.  The law requires that substantially all the assets of a trade or business be acquired and that employees continue to work for the new employer.

In this case there will not be double or excess taxation to the employer.  Wages paid in the calender year by the first employer will be treated as if paid by the second employer.

It is important to keep this in mind for any transaction that does not close at year end.  The details of the return filing requirements can be found in Rev. Proc. 2004-53.