Refundable Credits

The following credits are refundable and are treated as payments of tax.

• Credit for excess social security tax or railroad retirement tax withheld.
• Credit for tax on undistributed capital gain.

Credit for Excess Social Security Tax or Railroad Retirement Tax Withheld

Most employers must withhold social security tax from your wages. If you work for a railroad employer, that employer must withhold tier 1 railroad retirement (RRTA) tax and tier 2 RRTA tax.

If you worked for two or more employers in 2001, you may have had too much social security tax or RRTA withheld from your pay. You can claim the excess as a credit against your income tax. The following table shows the maximum amount of wages subject to tax and the maximum amount of tax that should have been withheld in 2001.

All wages are subject to Medicare tax withholding.

One employer. If any one employer withheld social security or RRTA tax that exceeded the amounts in the preceding table, you cannot claim the extra amount withheld by that employer as a credit against your income tax. Your employer must adjust this for you.

Joint return. If you are filing a joint return, you cannot add the social security or RRTA tax withheld from your spouse's wages to the amount withheld from your wages. Figure the credit separately for both you and your spouse to determine if either of you has excess withholding.

How to claim the credit. If you file Form 1040, enter the credit on line 62. If you file Form 1040A, include the credit in the total on line 41 and put "Excess SST" and the amount of the credit in the space to the left of the line.

How to figure the credit if you did not work for a railroad. If you did not work for a railroad during 2001, figure the credit as follows:

1.	Add all social security tax withheld (but not more than $4,984.80 for each employer). Enter the total here
2.	Enter any uncollected social security tax on tips or group-term life insurance included in the total on Form 1040, line 58
3.	Add lines 1 and 2. If $4,984.80 or less, stop here. You cannot claim the credit
4.	Social security tax limit	4,984.80
5.	Credit. Subtract line 4 from line 3. Enter the result here and on Form 1040, line 62 (or Form 1040A, line 41)

Example. You are married and file a joint return with your spouse who had no gross income in 2001. During 2001 you worked for the Brown Shoe Company and earned $45,000 in wages. Social security tax of $2,790 was withheld. You also worked for another employer in 2001 and earned $40,000 in wages. $2,480 of social security tax was withheld from these wages. Because you worked for more than one employer and your total wages were more than $80,400 you can claim a credit of $285.20 for the excess social security tax withheld.

1.	Add all social security tax withheld (but not more than $4,984.80 for each employer). Enter the total here	$5,270.00
2.	Enter any uncollected social security tax on tips or group-term life insurance included in the total on Form 1040, line 58	---0---
3.	Add lines 1 and 2. If $4,984.80 or less, stop here. You cannot claim the credit	5,270.00
4.	Social security tax limit	4,984.80
5.	Credit. Subtract line 4 from line 3. Enter the result here and on Form 1040, line 62 (or Form 1040A, line 41)	$ 285.20

How to figure the credit if you worked for a railroad. If you were a railroad employee during 2001, figure the credit as follows:

1.	Add all social security and tier 1 RRTA tax withheld (but not more than $4,984.80 for each employer). Enter the total here
2.	Enter any uncollected social security and tier 1 RRTA tax on tips or group-term life insurance included in the total on Form 1040, line 58
3.	Add lines 1 and 2. If $4,984.80 or less, enter -0- on line 5 and go to line 6
4.	Social security and tier 1 RRTA tax limit	4,984.80
5.	Subtract line 4 from line 3
6.	Add all tier 2 RRTA tax withheld (but not more than $2,925.30 for each employer). Enter the total here
7.	Enter any uncollected tier 2 railroad retirement tax on tips or group-term life insurance included in the total on Form 1040, line 58
8.	Add lines 6 and 7. If $2,925.30 or less, enter -0- on line 10 and go to line 11
9.	RRTA tier 2 limit	2,925.30
10.	Subtract line 9 from line 8
11.	Credit. Add lines 5 and 10. Enter the result here and on Form 1040, line 62 (or Form 1040A, line 41)

Credit for Tax on Undistributed Capital Gain

You must include in your income any amounts that regulated investment companies (commonly called mutual funds) or real estate investment trusts (REITs) allocated to you as capital gain distributions, even if you did not actually receive them. If the mutual fund or REIT paid a tax on the capital gain, you are allowed a credit for the tax since it is considered paid by you. The mutual fund or REIT will send you Form 2439, Notice to Shareholder of Undistributed Long-Term Capital Gains, showing the undistributed capital gains and the tax paid, if any. Claim the credit for the tax paid by entering the amount on line 65, Form 1040, and checking box a. Attach Copy B of Form 2439 to your return. See Capital Gain Distributions in chapter 9 for more information on undistributed capital gains.

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