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Federal Agencies and the Wage Base

A Chief Counsel Memorandum released in March 2011 addresses the obligations of a federal agency, branch, or department to pay social security tax for wages paid to an employee covered by social security who also receives wages from another federal agency, and whose total compensation exceeds the wage base for a given year.

The wage base for 2012 is $110,100, and is adjusted annually. There is no wage base limitation on the Medicare tax.

The guidance indicates that for purposes of the exception provided by section 3121(a)(1), the U.S. government is considered one employer. As a result, all federal employers should consider social security wages paid by another federal employer in determining whether an employee has received wages equal to the wage base. However, federal employers are not required to coordinate activity with each other to ensure that the agencies together do not pay social security tax on amounts that exceed the contribution and benefit base.

The employee can recover the employee portion through the special refund of overwithheld social security tax in section 6413(c)(2)(A). A federal agency is not entitled to file a refund claim for the employer portion of the social security tax paid in excess of the minimum wage base by the agency and another federal agency. The federal agency must follow the normal procedures for obtaining a refund or adjustment.

The memo also addressed situations in which a federal agency uses two shared service centers to pay wages. For more information, see the Memorandum (ILM 201125015).

Page Last Reviewed or Updated: 07-Feb-2014