What Is the Additional Medicare Tax?

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  • These advertisements painted a picture of confusion before recommending solutions that appeared to transform everything into a utopia.
  • IRS Publication 15-B Employer’s Tax Guide to Fringe Benefits has a list of wages that are exempt from Social Security and Medicare taxes.
  • Withholding rules for this tax are different than the income tax withholding rules for supplemental wages in excess of $1,000,000 as explained in Publication 15, section 7.
  • Self-employed taxpayers who are at or over the limits need to include this calculation in their estimated tax payments for the year.
  • Though Medicare offers a wide range of cost and coverage options, funding the Affordable Care Act provides further aid to those in need.

As we have seen here, the additional tax is only assessed above certain thresholds. Even above the thresholds, the percentage is not high, but you will still want to make sure you have calculated it correctly. Medicare Open Enrollment for 2022 began on October 15, 2021, and ends on December 7, 2021. During this time, people eligible for Medicare can compare 2022 coverage options between Original Medicare, and Medicare Advantage, and Part D prescription drug plans. Medicare health and drug plan costs and covered benefits can change from year to year, so people with Medicare should look at their coverage choices annually and decide on the options that best meet their health needs. Report the total amount of Medicare tax you withhold from an employee’s wages in box 6, Medicare tax withheld.

How To Calculate the Additional Medicare Tax

The tax is charged to people on their paychecks, much like the Social Security tax. The Medicare tax rate is 2.9% which is split between the employer and the employee. This amount is split evenly between an employer and employee, each paying 1.45%. The Additional Medicare Tax applies at a rate of 0.9% of all eligible Medicare wages above the threshold for your filing status.

Richard will be over-withheld because the couple’s combined income is beneath the married, filing jointly threshold of $250,000. The additional Medicare tax rate is 0.9% but only applies to the income above the taxpayer’s threshold limit. For an individual earning $225,000 a year, the first $200,000 is subject to a Medicare tax of 1.45%, and the remaining $25,000 is subject 19 red eye causes and how to treat red eyes to an additional Medicare tax of 0.9%. The surtax is withheld from an employee’s paycheck or paid with self-employment taxes, with no employer-paid portion. So, what if you have a married employee who files jointly or separately? Disregard their filing status when it comes to payroll tax withholding—the IRS requires that employers withhold the tax from wages over $200,000.

How is the Additional Medicare Tax calculated?

The amount of Medicare withholding may not be the amount an individual must pay, Employers must withhold the 0.9% tax on income over $200,000 for the year, even if the tax withheld is higher or lower than the amount due. If you had more than one type of income, such as W-2 income and self-employment income, you will have to complete all sections that apply. Once you complete Form 8959 and figure out the total Additional Medicare Tax you’re responsible for, the final section of the form subtracts the tax you paid through paycheck withholding as shown on your W-2.

Credits & Deductions

People often qualify during the three months before or after their 65th birthday. On July 30, 1965, President Lyndon B. Johnson signed Medicare into law to help cover healthcare costs after age 65, as well as for people with disabilities and certain illnesses. The Medicare tax, which is a type of payroll tax, funds medical, hospital and hospice care for these groups.

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

This additional tax must be paid on the individual’s personal income tax return. They may need to pay estimated taxes or change their W-4 form to account for the additional tax due. Individuals will calculate Additional Medicare Tax liability on their individual income tax returns (Form 1040 or 1040-SR),using Form 8959, Additional Medicare Tax. Individuals will also report Additional Medicare Tax withheld by their employers on their individual income tax returns. Any Additional Medicare Tax withheld by an employer will be applied against all taxes shown on an individual’s income tax return, including any Additional Medicare Tax liability. An individual cannot designate any estimated payments specifically for Additional Medicare Tax.

Also, the “ignore the spouse’s earnings” rule applies even if both spouses work for the same company. See Publication 505, Tax Withholding and Estimated Tax for more information in either instance. 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.

Enacted in March 2010, The Affordable Care Act’s primary goals are to make health insurance more affordable, expand the Medicaid program, and support new, cost-efficient medical care methods. As there is no ceiling on the 1.45 percent portion of the Medicare tax, you must continue to withhold and pay the Medicare tax regardless of how much you pay an employee. All employed individuals in the United States pay the Medicare tax, even if the employee or employer is not a citizen of the country. Medicare tax is used to fund the Medicare health system in the United States. The tax funds are used for Medicare Part A, which covers hospital insurance for senior citizens and those with disabilities. Part A costs include hospital, hospice, and nursing facility care.

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