About Form 8959, Additional Medicare Tax Internal Revenue Service

Some taxpayers may need to request that their employer withhold an additional amount of income tax withholding on Form W-4, Employee’s Withholding Certificate, or make estimated tax payments to account for their Additional Medicare Tax liability. See Publication 505, Tax Withholding and Estimated Tax for more information in either instance. Unlike the other FICA taxes, the 0.9 percent Medicare surtax is imposed on the employee portion only. There is no employer match for the Medicare surtax (also called the Additional Medicare Tax). You withhold this 0.9 percent tax from employee wages, and you do not pay an employer’s portion. Also, unlike the other FICA taxes, you withhold the 0.9 percent Medicare surtax only to the extent that wages paid to an employee exceed $200,000 in a calendar year.

Richard will be over-withheld because the couple’s combined income is beneath the married, filing jointly threshold of $250,000. Don, who is married and files married filing separately, has $150,000 in self-employment income and $200,000 in wages. Therefore, Don’s employer didn’t withhold Additional Medicare Tax. However, Don is liable for Additional Medicare Tax on $75,000 of wages ($200,000 in wages minus the $125,000 threshold for a married filing separately return). In addition, the $200,000 of wages reduces the self-employment income threshold to $0 ($125,000 threshold minus the $200,000 of wages). Don is also liable for Additional Medicare Tax on $150,000 of self-employment income ($150,000 in self-employment income minus the reduced threshold of $0).

• The total self-employment income is then reduced by multiplying it by 92.35% (essentially deducting the employer’s share of FICA, 7.65%).
• Your employer is also responsible for paying half of the total FICA obligation.
• Additional Medicare tax doesn’t apply to everyone, only those whose income surpasses a specific threshold.
• For single filers, the threshold is just $200,000 of AGI.
• If you’re head of a household and responsible for filing the taxes, you’ll be responsible for paying the additional Medicare tax if your income is above $200,000.

Hannah’s husband Samuel earns $100,000 from one employer and $60,000 from another employer during 2022. Their combined earnings are $290,000, which is $40,000 over the married, filing jointly threshold. However, none of their employers are required to withhold the 0.9 percent surtax because neither spouse earned over $200,000 from any one employer. Richard, your employee, earns $220,000 from you during 2022. He is married, but his wife does not have any earned income. You must start withholding the additional 0.9 percent Medicare tax when Richard’s earnings exceed $200,000.

What is the Income Threshold for Additional Medicare Tax?

You begin withholding the surtax in the pay period in which you pay wages in excess of this $200,000 “floor” to an employee, and you continue to withhold it each pay period until the end of the calendar year. Also include any uncollected Medicare tax on tips from Form W-2, box 12, code B, and any uncollected Medicare tax on the taxable cost of group-term life insurance over $50,000 (for former employees) fromForm W-2, box 12, code N. If you have more than one Form W-2, add the amounts in box 12, codes B and N, of all your Forms W-2 and enter the total here.

Unlike the additional Medicare tax, there is no base limit on wage, so all wages are subject to standard Medicare tax. The additional Medicare tax was issued by the Internal Revenue Service (IRS) on November 26, 2013. Additional Medicare tax doesn’t apply to everyone, only those whose income surpasses a specific threshold.

• Medicare services may be cut, or lawmakers may find other ways to finance these benefits.
• An employer is required to begin withholding Additional Medicare Tax in the pay period in which it pays wages in excess of $200,000 to an employee.
• If you expect to owe $1,000 or more in tax for 2023 after subtracting your withholding and refundable credits, see Form 1040-ES (or Form 1040-ES-NR if a nonresident alien or Form 1040-ES (PR) if a resident of Puerto Rico) and Pub.
• If you are both an employee and self-employed, all sources of earned income (as opposed to investment income) are combined to reach the levels where the Additional Medicare Tax is applicable.

This amount is then transferred to Line 18 of the form and from there to Line 8 of Schedule 2 (Form 1040) Additional Taxes to add to your total tax due. Part V of the form calculates the additional amount your employer already withheld from your pay and that amount appears on Line 24 and from there goes to Line 15 of Federal Form 1040 to add to your total tax withheld. In this way, the two amounts net out to reconcile what your actual additional tax is against the amount your employer withheld and included on your Form W-2. The calculation of the additional tax can be a bit confusing because IRS Form 8959 does not actually “net” the difference between what your employer withheld and what the tax is in your situation, but transfers both amounts to Federal Form 1040 U.S. Adding to the confusion, are the instructions from the IRS to employers to calculate the amount to withhold from their employees’ pay using the threshold of $200,000. They do this as the employers cannot be certain what filing status their employees will ultimately use on their tax return.

Social Security Wage Base Increases to $168,600 in 2024

There is no regular withholding for self-employment tax, so if you expect that your income might be above the levels above, you may need to increase your estimated tax payments to account for the additional Medicare tax. For example, if you as an employer withheld the Additional Medicare Tax above $200,000, and the employee is married, filing jointly, the employee doesn’t have to pay the Additional Medicare Tax until his/her income exceeds $250,000. In this case, the amounts in Line 5 and Line 6 will be different, and the employee may be entitled to a refund of some or all of the amount withheld. Kathleen has $130,000 in wages (included on line 4 of Form 8959).

How does Additional Medicare Tax get included on an employee’s tax return?

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There are no special rules for nonresident aliens or U.S. citizens and resident aliens living abroad for purposes of this provision. Medicare wages, railroad retirement (RRTA) compensation, and self-employment income earned by such individuals will also be subject to Additional Medicare Tax, if in excess of the applicable threshold for their filing status. The obligation to withhold applies only to amounts in excess of $200,000. However, once you are obligated to begin withholding the Medicare surtax, you continue to withhold it each pay period until the end of the calendar year. The Medicare tax rate is 2.9% of the employee’s taxable wages, with 1.45% paid by the employee and 1.45% paid by the employer.

Like Social Security tax, Medicare tax is withheld from an employee’s paycheck or paid as a self-employment tax. The number that employees arrive at when they calculate the Additional Medicare Tax on their tax returns may or may not match up with what the difference between direct costs and indirect costs was withheld from their earnings. An employee is liable for the Additional Medicare Tax even if the employer doesn’t withhold it. An employer does not combine wages it pays to two employees to determine whether to withhold Additional Medicare Tax.

But the rules for withholding Additional Medicare Tax are different from the rules for calculating the regular Medicare tax. This can result in an employer withholding an amount that’s different from the correct amount of tax that will ultimately be owed. Albert is single and earns $150,000 in Medicare wages at one job and $75,000 in Medicare wages at a second job. Albert will owe the Additional Medicare Tax on the amount by which his combined Medicare wages exceed $200,000, the threshold amount for a single person. His excess amount is $25,000, or $225,000 minus $200,000. Albert’s Additional Medicare Tax is therefore $225, or 0.9% of $25,000.

Tax and accounting regions

California already has some of the highest state-level income taxes in the country, topping out at 13.3%. If you are a taxpayer in the top federal and California tax brackets, you are also likely going to be subject to an additional 3.8% Medicare surtax on of your investment income. Having the income to get hit with the Medicare Surtax is a good thing, having to pay an additioanl … [+] 3.8% tax on your investment income is not something to celebrate.

You withhold the surtax from employee wages, but there is never a matching payment required by the employer. You simply multiply an employee’s gross wage payment by the applicable tax rate to determine how much you must withhold and how much you must pay in Social Security and regular Medicare taxes. If an employee’s withholding is miscalculated and they are owed a refund, the employee must request the refund directly from the IRS. Don’t attempt to give the employee a refund or adjust the employee’s withholding on a miscalculation of federal income tax or FICA tax.

For more information, please use the IRS Questions and Answers for the Additional Medicare Tax link. Your investment income is likely to fluctuate year to year, especially if you sell a home or have equity compensation and realize investment income as your stock options vest. Many people just think of their taxes based on their paychecks or business income.

C and D are married filing separate spouses living in a community property state. C has $150,000 in self-employment income and D has $240,000 in wages. C is liable for Additional Medicare Tax on $25,000 of self-employment income, the amount by which C’s self-employment income exceeds the $125,000 threshold for married filing separate.

Many of my clients live in high-tax states like California and New York, making tax planning even more valuable. In the below example, the individual has earned a net investment income of $26,868 from dividends and interest and has a modified adjusted gross income (MAGI) of $252,494. For withholdings that are exempt from Medicare, you can enter the M1 code on the W/H line to exclude the additional Medicare tax.

How do I know whether I need to pay the Additional Medicare Tax?

M’s employer also must withhold Additional Medicare Tax on any other wages paid in December 2013. G, a head of household filer, has $225,000 in wages and $50,000 in self-employment income. G’s employer withheld Additional Medicare Tax on $25,000 ($225,000 minus the $200,000 withholding threshold). F, who is married filing separate, has $175,000 in wages and $50,000 in self-employment income. A withholding tax is an income tax that a payer (typically an employer) remits on a payee’s behalf (typically an employee). The payer deducts, or withholds, the tax from the payee’s income.