Employer Information on the Additional Medicare Tax
Employer Information on the Additional Medicare Tax: Higher-income workers owe the Additional Medicare Tax, which employers are responsible for withholding and paying to the Internal Revenue Service (IRS). This article will teach you how to withhold, report, and pay the employment tax.
What Is the Medicare Supplementary Insurance Tax?
Most workers in the United States are required to pay Social Security and Medicare taxes as contributions to their Social Security coverage. Their employer withholds the taxes. Self-employed people must also pay these taxes in the form of self-employment tax.
The Medicare tax rate is 2.9 percent of an employee’s taxable earnings, with the employee paying 1.45 percent and the employer paying 1.45 percent. The employee’s share of the Additional Medicare Tax is 0.9 percent. This extra tax does not have to be paid by the employer.
What Is the Additional Medicare Tax and How Does It Work?
Employers must begin withholding the Additional Medicare tax rate from an employee’s salary when the individual’s total pay for the year exceeds $200,000 and continue withholding this tax until the end of the year.
The Additional Medicare Tax applies to all Medicare salaries, railroad retirement (RRTA) pay, and self-employment income that is subject to the regular Medicare tax.
Based on filing status, the employee pays the extra tax on pay that exceeds the following threshold amounts.
How Do I Report Extra Medicare Taxes?
You must keep track of how much extra Medicare tax was deducted from employee pay and how much you owe the IRS as an employer. These sums must be paid in addition to any other payroll taxes.
Quarterly Tax Return Reporting (Form 941)
IRS Form 941 (Employer’s Quarterly Federal Tax Return) includes the Additional Medicare Tax due. You must include it in the total amount of taxable Medicare wages and tips subject to Additional Medicare Tax withholding on Line 5c and in the total amount of taxable Medicare wages and tips subject to Additional Medicare Tax withholding (on Line 5d)
Remember that starting at $200,000, you are withholding the extra Medicare tax, but the employee may owe more or less on their tax return.
Reporting on W-2 Forms for Employees
When preparing W-2 forms to submit to workers in January, be sure to explain line 5 “Medicare earnings and tips.” Employees who had the Additional Medicare Tax withheld may have concerns regarding this form and the discrepancy between the amount withdrawn for Medicare tax withheld on Line 6 and the Medicare wages on this line.
If you withheld the Additional Medicare Tax over $200,000 as an employer and the employee is married and filing jointly, the employee will not be required to pay the Additional Medicare Tax until his or her income reaches $250,000. Lines 5 and 6 will be different in this instance, and the employee may be entitled to a return of part or all of the sum withheld.
Employee Owed Money vs. Withheld Money
Employers must withhold the 0.9 percent tax on income above $200,000 for the year, regardless of whether the tax withheld is greater or lower than the amount payable.
Some workers may owe more than the amount deducted in Additional Medicare Tax. This extra tax must be paid on a person’s personal tax return. To account for the extra tax payable, they may need to pay anticipated taxes or amend their W-4 form.
Individuals who are self-employed are subject to an additional Medicare tax.
Self-employed people who earn more than a certain amount are also subject to the new Medicare tax. All sources of earned income (as opposed to investment income) are combined to achieve the levels where the Additional Medicare Tax is applied if you are both an employee and a self-employed person. For example, if you make $150,000 per year at your employment plus $60,000 in a company, you’ve made more than $200,000 and must pay the Additional Medicare Tax.
Because self-employment tax is not withheld on a regular basis, if you anticipate your income to be higher than the amounts shown above, you may need to raise your projected tax payments to account for the extra Medicare tax.
Most Commonly Asked Questions (FAQs)
What is the formula for calculating the Additional Medicare Tax?
Here’s a basic illustration of how the Additional Medicare Tax is calculated for a single employee with a $225,000 yearly salary. On earnings above $200,000 for the year, the single employee must pay the extra tax, which is the same as the withholding start amount.
What is the process for include the Additional Medicare Tax on an employee’s tax return?
On their individual income tax returns, employees, self-employed people, and others must utilize IRS Form 8959 to compute their Additional Medicare Tax obligation. To determine whether they owe extra tax or are entitled to a refund, they should first input the amount of the obligation, including earnings and tips, then enter their filing status and deduct the amount paid. Self-employment earnings have their own division.
What are the definitions of taxable Medicare earnings and tips?
Other salaries and fringe benefits are taxable to employees for income tax reasons, while some earnings, including the Additional Medicare Tax, may not be taxable to employees for Social Security and Medicare taxes. When calculating the earnings subject to the Additional Medicare Tax while you work on payroll, you must subtract the wages not subject to Social Security and Medicare taxes.