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Extra Medicare Tax | Detailed Overview

Calculate wages. Withhold taxes. Repeat. That’s the cycle of operating payroll for you. However occasionally, you’ll get a curveball that modifications tax charges. And if an worker earns past a specific amount, that curveball is the extra Medicare tax.

So, how a lot have you learnt concerning the (spoiler alert) 0.9% Medicare further tax? Learn on for the news. 

Extra Medicare tax

Extra Medicare tax is an additional share utilized to wages earned above a specific amount (which varies by submitting standing). It’s an quantity that’s along with the traditional Medicare tax price of 1.45%. 

Medicare tax is an employer and worker tax. This implies employers withhold 1.45% of an worker’s taxable wages for Medicare tax and contribute an identical 1.45%. Though Medicare tax is an worker and employer tax, the further Medicare tax price is an employee-only tax.

Confused? Our Q&A under ought to clear up a few of the confusion. 

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What’s further Medicare tax?

The extra Medicare tax went into impact in 2013. It applies to qualifying wages, compensation, and self-employment earnings. 

Like Medicare tax, the extra Medicare tax price is a payroll tax that funds Medicare advantages, together with:

  • Inpatient hospital care
  • Expert nursing facility care
  • Dwelling well being care
  • Hospice care
  • Medicare program administration

You’ll be able to be taught extra about Medicare funding on the U.S. federal authorities web site.

What’s the Medicare supplemental tax price?

Effectively, this could come as no shock (it’s within the title, in spite of everything!), however the further Medicare tax price is 0.9%.

Once more, workers additionally pay the common Medicare tax price of 1.45%. Eligible workers pay Medicare tax (1.45%) and further Medicare tax (0.9%) on qualifying wages for a complete of two.35%.

What is additional Medicare tax? Additional Medicare tax is an extra 0.9% taxpayers owe on wages above a certain amount, which varies by filing status. Employers must withhold this tax from employee wages that exceed $200,000 in a calendar year.

Who pays further Medicare taxes?

Greater-earning workers should pay further Medicare tax after they earn above their submitting standing’ threshold quantity:

Submitting Standing Threshold Quantity
Single $200,000
Married submitting collectively $250,000
Married submitting individually $125,000
Head of family (with qualifying individual) $200,000
Qualifying widow(er) with dependent baby $200,000

The extra tax price applies to wages earned past this threshold. For instance, a person submitting single would owe the additional 0.9% on wages earned past $200,000.

Once more, solely workers pay this extra price. Employers don’t. If certainly one of your workers meets the necessities, withhold 2.35% from their wages and proceed contributing 1.45%.

When do I have to withhold further Medicare taxes?

Employers should withhold the extra 0.9% tax from worker wages over $200,000 in a calendar yr. That is the edge quantity for single, head of family, and qualifying widow(er) submitting statuses. 

So, what when you’ve got a married worker who information collectively or individually? Disregard their submitting standing with regards to payroll tax withholding—the IRS requires that employers withhold the tax from wages over $200,000. 

Staff who ask you to not withhold the extra Medicare tax are out of luck. You have to withhold the tax on wages over $200,000 no matter whether or not the worker will owe the tax or not. As an alternative, workers who file collectively and received’t meet the $250,000 threshold can declare a credit score when submitting their particular person earnings tax return. 

Start withholding further Medicare tax within the pay interval you pay the worker wages past $200,000. Remember that the IRS doesn’t require that you simply notify workers earlier than you begin withholding it. 

How do I deposit and report it?

Like different payroll taxes, you need to deposit further Medicare tax with the IRS and report it. So, is there a distinction in how you need to deposit and report it? No and sure, respectively. 

In terms of further Medicare tax, you need to:

  • Deposit as regular
  • Report on a separate line in Type 941 or 944
    • Type 941: Report further Medicare tax on line 5d
    • Type 944: Report further Medicare tax on line 4d

What about Type W-2? Do you could do any particular reporting on Type W-2? Report the entire quantity of Medicare tax you withhold from an worker’s wages in field 6, Medicare tax withheld. Embrace each common Medicare tax and extra Medicare tax withheld. 

Staff should report the additional tax by attaching Type 8959, Extra Medicare Tax, to their earnings tax return.

What if I under-withhold further Medicare tax? 

Right here’s the underside line: You’re responsible for any unpaid tax. For those who make a mistake and under-withhold the Medicare surtax, you’ll be able to both:

  • Deduct the right amount from the worker’s wages on or earlier than the final day of the calendar yr
  • Pay the distinction 

Catch the error in the identical yr you paid the wages topic to further Medicare tax? Nice! File a corrected return (e.g., Type 941-X) and make an interest-free adjustment for the quantity. 

The place can I am going for extra info?

For those who’re hungry for extra must-have further Medicare tax info, take a look at the IRS web site.

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This isn’t supposed as authorized recommendation; for extra info, please click on right here.



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