Question about S-corp and FICA taxes in the setting of high W2 earnings with a 1099 side hustle:
Wondering what insight you all may have.
I will have a relatively high W2 salary this year (550k) and a side hustle that brings in about 150k of 1099 income.
I’ve come across an interesting point that suggests it may not be the best idea to form an S-corp for my side hustle in this type situation. If I understand the point correctly, the concern with forming an S-corp in this situation is that it may actually increase my payroll taxes for my side hustle as opposed to keeping the side hustle as a sole proprietorship. I believe the reasoning behind this is because at my W2 job, I would pay my 1/2 of payroll taxes up to the 2023 social security tax limit of $160,200, and my employer will cover the other 1/2.
However, if I form an S-corp, then I would have to also pay both halves of payroll taxes on whatever W2 salary I took within the S-corp, which would be unfortunate because then I would be overpaying on payroll taxes since I had already paid the maximum at my W2 job. If this is the case, then it seems it would negative or greatly diminish any potential payroll tax savings that an S-corp structure typically would provide.
Am I understanding this correctly?
Furthermore, I’ve read that if you overpay the employEE portion of social security taxes, you can claim to have this overpayment refunded to you on your 1040, but to the best of my knowledge, you cannot claim a refund as an employER for any overpayment of social security taxes (again, not sure if this is definitely true, but I did see this mentioned on a blog).
Also, if in this exact situation, what would my payroll tax responsibilities be with regards to the side hustle 1099 income, both as an employER and employEE, if I’ve already paid the max social security tax at my W2 job? I don’t think I would have to pay any social security tax on the 1099 income from the employEE perspective, but what about the employER half?
Much appreciation to anyone who is willing to unapck this.
Thank you in advance.