What Is Form 8959: Additional Medicare Tax

Medicare is a federal insurance program that covers certain health care costs for people over age 65 and disabled people. Upon qualifying for Medicare, you may either enroll in the original Medicare coverage, or a private plan known as Medicare Advantage. People often qualify during the three months before or after their 65th birthday. For individuals with a salary above these thresholds, the employer withholds the additional 0.9%.

  • The additional tax has been in place since 2013 as a part of the Affordable Care Act and applies to taxpayers who earn over a set income threshold.
  • Paying Medicare tax is mandatory for U.S. employees regardless of your coverage status.
  • It’s payable only as a percentage of the investment portion of income, however, so wage and self-employment income can’t be subject to both taxes.
  • 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.
  • Additional Medicare tax doesn’t apply to everyone, only those whose income surpasses a specific threshold.
  • It can be calculated as a percentage of a certain amount or a flat dollar rate.

Although Medicare tax is an employee and employer tax, the additional Medicare tax rate is an employee-only tax. A 3.8% net investment income tax (NIIT) may apply to investment income, which includes capital gains, dividends, annuity distributions, royalties, rent and interest. The income eligibility threshold varies based on your tax filing status, says Colleen Carcone, a Certified Financial Planner and the Director of Wealth Planning Strategies for TIAA in Boston.

Medicine Cabinet Tax

You must combine wages and self-employment income to determine if your income exceeds the threshold. A loss from self-employment when you figure this tax is not considered. You must compare RRTA compensation separately to the threshold. The standard Medicare tax is 1.45% if someone is an employee or 2.9% if a person is self-employed. Single tax filers earning above $200,000, or $250,000 for married couples, pay the 0.9% additional Medicare tax. Both employed and self-employed individuals pay some of their income into Medicare through taxes.

  • Premium tax credits and subsidies are available to help lower the cost of monthly premiums and out-of-pocket expenses.
  • Medicaid expansion, which was also part of the ACA, extended coverage to many low-income individuals and families.
  • 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.
  • However, the average American was also impacted by the individual mandate, a requirement to buy health insurance, as well as insurance premium hikes passed on by insurers hit with new fees and taxes.
  • A withholding tax is an income tax that a payer (typically an employer) remits on a payee’s behalf (typically an employee).

This includes several types of income like salary and wages, overtime, and paid time off (PTO). High-wage earners pay more than the standard https://intuit-payroll.org/ tax payment for Medicare. If you employ highly compensated employees, you must ensure you withhold the correct amount for Medicare taxes.

What Is the Medicare Tax Rate?

Additional Medicare Tax withholding will be applied against the taxes shown on the employee’s individual income tax return (Form 1040 or 1040-SR). The employee will report and pay all Additional Medicare Tax liability, including any liability that exceeds Additional Medicare Tax withheld, on the employee’s individual income tax return. To the extent the employer can show that the employee paid Additional Medicare Tax, the underwithheld amount will not be collected from the employer.

Who Pays Medicare Taxes and Why?

And if you want to file your own taxes, you can still feel confident you’ll do them right with TurboTax as we guide you step by step. No matter which way you file, we guarantee 100% accuracy and your maximum refund. When providing the deposit detail, regular Medicare tax and Additional Medicare Tax are entered as one combined amount. Calculate Additional Medicare Tax on any self-employment income in excess of the reduced threshold. Many or all of the products featured here are from our partners who compensate us.

Adjustments to Net Investment Income Tax

Don’t consider a self-employment loss for purposes of this tax. Compare Railroad retirement (RRTA) compensation separately to the threshold. High-income earners subject to the Additional Medicare Tax pay an additional 0.9% on earnings beyond a set threshold. The Internal Revenue Service usually releases income tax forms for the current tax year between October and January, although changes to some forms can come even later. We last updated Federal Form 8959 from the Internal Revenue Service in December 2022.

Considerations for Self-Employed Individuals

There are some changes to taxes due to coronavirus (COVID-19), and a person can check for the most recent changes on the IRS website. With the Affordable Care Act, a person enrolled in Medicare no longer had to worry about the Medicare Part D coverage https://simple-accounting.org/ gap, also known as the donut hole. Employers do not have to contribute any amounts through the additional Medicare tax. Erika Rasure is globally-recognized as a leading consumer economics subject matter expert, researcher, and educator.

The additional Medicare tax applies to your wages, compensation, Railroad Retirement Tax Act (RRTA) compensation or self-employment income. Gratuity tips you may receive at work should also be accounted for. If you are liable for Additional Medicare https://personal-accounting.org/ 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 K’s total self-employment income).

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