If you are liable for Additional Medicare Tax and/or your employer withheld Additional Medicare Tax from your wages or compensation, you must file Form 8959. K calculates Additional Medicare Tax only on $25,000 in self-employment income (half of the pros and cons of starting a bookkeeping business K’s total self-employment income). Since $25,000 is below K’s $200,000 threshold, K does not owe Additional Medicare Tax. H calculates Additional Medicare Tax only on $50,000 in self-employment income (half of H’s total self-employment income).
The employee may need to make estimated tax payments to cover any shortage. More information about this process of giving an employer money for taxes is available in Publication 531, Reporting Tip Income. 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.
Breakdown of Tax Changes
High-income Medicare surcharges, which apply additional premiums for Part B and Part D drug plans for about 8% of the highest-earning Medicare enrollees, will increase about 6%. The deductible for Part A will rise 2% to $1,632 in 2024 from $1,600 this year. Two-percent increases will also be applied to coinsurance programs for care in hospitals and skilled nursing homes. This statement rings especially true when managing the withholding aspect of this extra medicare surcharge. In this post, we’ll navigate these choppy waters together and bring clarity on who is liable for this additional Medicare Tax, its rate, and what types of income are impacted.
- Surtaxes were originally introduced in 1967, when President Lyndon B. Johnson proposed a 6% surcharge on corporate and individual income taxes.
- Barney and Betty’s Additional Medicare Tax is 0.9% of $25,000, or $225.
- On December 1, 2013, M’s employer paid her a bonus of $50,000.
- The average monthly benefit will rise by $59 next year, to $1,907 from $1,848.
- They may need to pay estimated taxes or change their W-4 form to account for the additional tax due.
This tax, which went into effect in July 2010, placed a 10% excise tax on U.S. indoor tanning salons. While it was expected to bring in $1 billion in new tax revenues during the first four years, the tax has since been deemed a failure, raising just over $367 million in its first four years. It also contributed to the demise of the indoor tanning salon industry, which proponents of the provision still count as a public health win. It was in effect from 2013 to 2015 but was suspended by Congress in 2016 through 2019, prior to being permanently repealed for the tax year 2020.
A Brief History of Taxes Under the Affordable Care Act
You should consider your estimated total tax liability in light of your wages, other compensation, and self-employment income, and the applicable threshold for your filing status when determining whether estimated tax payments are necessary. Since your joint earned income ($235,000) isn’t more than $250,000, you won’t owe Additional Medicare Tax. However, your employer will still withhold the tax from your paycheck on wages over $200,000. Any tax withheld from your paycheck that you’re not liable for will be applied against your taxes on your income tax return.
Why am I paying additional Medicare tax?
It’s all about knowing your liability and understanding what types of income are impacted. Figuring out your additional Medicare tax might seem like a puzzle, but with the right tools – IRS forms 8959 and W-4 or 1040-ES – it’s manageable. Understanding thresholds and rates is key to calculating correctly, especially for high earners or those with multiple jobs. And remember to always double-check your work; accuracy in these calculations can save you from potential penalties down the line.
How does Additional Medicare Tax get included on an employee’s tax return?
You and your spouse’s combined income ($300,000) is more than $250,000. So, you’ll be liable for the additional 0.9% Medicare tax. However, neither of your employers will withhold the tax since each of your wages is less than $200,000.
An employer is not relieved of its liability for payment of any Additional Medicare Tax required to be withheld unless it can show that the tax has been paid by filing Forms 4669 and 4670. Even if not liable for the tax, an employer that does not meet its withholding, deposit, reporting, and payment responsibilities for Additional Medicare Tax may be subject to all applicable penalties. You must file Form 8919, Uncollected Social Security and Medicare Tax on Wages, to report your wages and compute any Social Security and Medicare taxes due.
The wages are not combined for purposes of the $200,000 withholding threshold if the payor is not a common paymaster. You must file Form 4137, Social Security and Medicare Tax on Unreported Tip Income, to report unreported tips and compute any Social Security and Medicare taxes due. You must also file Form 8959, Additional Medicare Tax, to compute any Additional Medicare Tax due.
Starting with the 2013 tax year, you may be subject to an additional 0.9 percent Medicare tax on wages that exceed a certain threshold. The Additional Medicare Tax is charged separately from, and in addition to, the Medicare taxes you likely pay on most of your earnings. The tax applies to wages from employment, self-employment income and railroad retirement income, but if you are receiving W-2 income, the tax will most likely be withheld from your wages.