Since 2013, some taxpayers have been liable for an Additional Medicare Tax if their income exceeds certain limits. To make sure you and your clients are prepared, here’s what you should know.
What are the income thresholds for the Additional Medicare Tax?
Threshold amounts are based on filing status. For couples who are married filing jointly, you’ll combine each spouse’s wages, compensation, or self-employment income. Use the combined total to determine if their income exceeds the threshold for their filing status:
|Filing Status||Threshold Amount|
|Married filing jointly||$250,000|
|Married filing separately||$125,000|
|Head of household||$200,000|
|Qualifying widow(er) with dependent child||$200,000|
What is the Additional Medicare Tax rate?
The Additional Medicare Tax rate is 0.9 percent.
What income is subject to the Additional Medicare Tax?
The tax only applies to income above the threshold amount and only to income from Medicare wages (i.e. employment income), self-employment, and railroad retirement (RRTA) compensation. To know if your clients are liable for the tax, you’ll combine their wages and self-employment income. If the amount exceeds the threshold, they’ll pay the 0.9% Additional Medicare Tax rate on the excess.
Note that RRTA compensation is considered separately. For example, one spouse earns $170,000 in wages, and the other receives $100,000 in RRTA compensation. Even though their total income of $270,000 would put them over the threshold, the RRTA compensation is not added to the wages, and they are not liable for the tax. However, if they earned the same amount, but the $100,000 came from wages or self-employment income instead of RRTA compensation, they would be liable for the tax.
See Instructions for Form 8959 for more on these rules.
Do employers withhold for the Additional Medicare Tax? Should your clients make estimated tax payments?
Employers must withhold this tax from employee wages if they pay that employee more than $200,000 in a calendar year. If your client’s only source of income is their W-2 employment wages, their Additional Medicare Tax should have already been withheld throughout the year. However, if their employment wages are under the threshold amount, but they have additional self-employment income that puts them over the threshold, their employer will not withhold Additional Medicare Tax. They’ll need to adjust their withholdings themselves or pay estimated taxes.
Spouses who each earn under $200,000 individually but earn more than $250,000 combined will also need to request additional withholdings or pay estimated taxes.
Self-employed individuals who earn above the threshold should include this tax when they make estimated tax payments.
What is the Additional Medicare Tax Form?
The Additional Medicare Tax is calculated on Additional Medicare Tax Form 8959, which consists of five parts. Parts I, II, and III calculate any Additional Medicare tax owed on Medicare wages, self-employment income, and RRTA compensation, respectively. Part IV totals the figures from Parts I, II, and III. Part V reconciles any Additional Medicare Tax that was withheld throughout the year.
How do you report Additional Medicare Tax?
Calculations from Form 8959 will be entered on your clients’ 1040. Form 8959 is supported in your TaxSlayer Pro software, simplifying the calculation process for you and your clients.
What happens if your clients underpaid for the Additional Medicare Tax?
If your clients had too little tax withheld or did not pay enough estimated tax, they may owe an estimated tax penalty. To avoid penalties in future years, you can help your clients adjust their withholdings or increase their estimated tax payments.
This article was last updated on July 18, 2022.