M’s employer also must withhold Additional Medicare Tax on any other wages paid in December 2013. You will report Additional Medicare Tax on Form 8959, Additional Medicare Tax, and attach Form 8959 to your income tax return. F has $160,000 in self-employment income and G has $140,000 in compensation subject to RRTA taxes.

• Premium amounts for Part D are based on the same income numbers as Part B. For Medicare beneficiaries paying only the standard premium, coverage of Part D is free.
• Medicare Part A covers inpatient hospital, skilled nursing facility, hospice, inpatient rehabilitation, and some home health care services.
• G, a head of household filer, has $225,000 in wages and $50,000 in self-employment income.

Incomes from wages, self-employment, and other compensation, including Railroad Retirement (RRTA) compensation, all count toward the income the IRS measures. If an employee’s withholding is miscalculated and they are owed a refund, the employee must request the refund directly from the IRS. Don’t attempt to give the employee a refund or adjust the employee’s withholding on a miscalculation of federal income tax or FICA tax. The Additional Medicare Tax is owed by higher-income employees, and employers are responsible for withholding this tax and paying it to the Internal Revenue Service (IRS). In 2022, the Social Security tax rate is 6.2% for employers and employees, unchanged from 2021. The Social Security wage base is $147,000 for employers and employees, increasing from $142,800 in 2021.

How To Calculate the Additional Medicare Tax

An employer does not combine wages it pays to two employees to determine whether to withhold Additional Medicare Tax. An employer is required to withhold Additional Medicare Tax only when it pays wages in excess of $200,000 in a calendar year to an employee. An employer that does not deduct and withhold Additional Medicare Tax as required is liable for the tax unless the tax that it failed to withhold from the employee’s wages is paid by the employee. 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. All RRTA compensation that is currently subject to Medicare Tax is subject to Additional Medicare Tax if it is paid in excess of the applicable threshold for an individual’s filing status.

Medicare services may be cut, or lawmakers may find other ways to finance these benefits. Your employer is required to collect the tax, and it sends both the employee and employer version to the IRS through regular electronic deposits. If you’re subject to this tax, your employer can withhold it from your paychecks, or you can make estimated payments to the IRS throughout the year. 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. 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. The additional Medicare tax was issued by the Internal Revenue Service (IRS) on November 26, 2013.

Medicare is a federal health insurance program consisting of three parts (A, B, and D). Most people don’t pay for Medicare Part A (hospital insurance) because its funded by taxpayer contributions to the Social Security Administration. Employees pay 1.45% of their earnings, employers pay another 1.45%, and self-employed individuals pay the full 2.9% on their own. Income up to a threshold amount is subject to the “regular” Medicare tax. Medicare tax is deducted automatically from your paycheck to pay for Medicare Part A. This will provides hospital insurance to seniors and people with disabilities.

To calculate your additional Medicare tax liability, you’ll need Form 8959 when filing for your tax return. The IRS has instructions for Form 8959 available to help you file correctly. If you’re married and filing separately — you’re responsible for paying the additional Medicare tax if your income threshold is above $125,000. If you’re married and filing jointly — the income threshold increases to $250,000. The additional Medicare tax is 0.9%, but it doesn’t apply to everyone like standard Medicare tax does.

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. Your employer must withhold Additional Medicare Tax on wages it pays to you in excess of $200,000 in a calendar year. Your employer cannot honor a request to cease withholding Additional Medicare Tax if it is required to withhold it. You will claim credit for any withheld Additional Medicare Tax against the total tax liability shown on your individual income tax return (Form 1040 or 1040-SR). Employees, self-employed individuals, and others must use IRS Form 8959 to calculate their Additional Medicare Tax liability on their individual income tax returns.

All FAQs that discuss the application of the Additional Medicare Tax to wages also apply to RRTA compensation, unless otherwise indicated. Employers are required to withhold the additional 0.9 percent for employees with salaries that are at or over these income limits. If you have income from other sources that will put you over that limit, you can request that your employer withhold this amount from your checks. Self-employed taxpayers who are at or over the limits need to include this calculation in their estimated tax payments for the year. There are also changes coming to the Medicare program, as the Medicare Part B standard monthly premium will rise to $174.70 for 2023, from the current $164.90 premium, representing a 6% increase.

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. 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. You must also file Form 8959, Additional Medicare Tax, to compute any Additional Medicare Tax due. Attach Forms 8919 and 8959 to your income tax return (Form 1040 or 1040-SR). Tips are subject to Additional Medicare Tax, if, in combination with other wages, they exceed the    individual’s applicable threshold. Tips are subject to Additional Medicare Tax withholding, if, in combination with other wages paid by the employer, they exceed the $200,000 withholding threshold.

Social Security and Medicare Tax Withholding Rates and Limits

Overall, your coverage choices impact how much you pay in premiums, deductibles and copays or coinsurance. And, of course, how often you use the health-care system can contribute to your costs. The Railroad Retirement Board withholds Part B premiums, Part B income-related adjustments, and Part D income-related adjustments from benefit payments it processes. The agency can also withhold Part C and D premiums from benefit payments if an individual submits a request to his or her Part C or D insurance plan. Net Investment Income Tax (NIIT), also known as unearned income Medicare contribution surtax, is an additional 3.8% tax applied to net investment income. The tax is applied to the lesser of an individual’s net investment income or the amount by which the modified adjusted gross income (MAGI) exceeds a certain threshold.

Who Pays for the Additional Medicare Tax?

A surtax is an additional tax imposed by the government on something already taxed. Typically, a surtax is charged on taxpayer incomes higher than a certain level at which normal income tax is paid. It can be calculated as a percentage of a certain amount or a flat dollar rate. To avoid paying the extra net investment income tax and additional medicare tax, your goal should be to earn less than $200,000 as an individual or $250,000 as a couple. The Additional Medicare Tax applies at a rate of 0.9% of all eligible Medicare wages above the threshold for your filing status.

Medicare Tax Rates Definition… What is the Calculation for 2022?

With the Affordable Care Act, a person enrolled in Medicare no longer had to worry about the Medicare Part D coverage gap, also known as the donut hole. Employers do not have to contribute any amounts through the additional Medicare tax. In 2013, the IRS announced that some higher-earning taxpayers would have to pay more money into Medicare through the additional Medicare tax, as part of the Affordable Care Act. Add the number of boxes checked under “child tax credit” in column (4) of the Dependents section on Form 1040 or 1040-SR and enter the result on line 4. For each dependent for whom you are claiming the ODC, you must check the “credit for other dependents” box in column (4) of the Dependents section on page 1 of Form 1040 or 1040-SR for the dependent. If you have a dependent who does not have an SSN, ITIN, or ATIN issued on or before the due date of your 2022 return (including extensions), you cannot use that dependent to claim the ODC on either your original or an amended 2022 return.

That means that many people are now drawing from Social Security for as much as a third of their adult lives, if not more. If people took the same number of retirement years as the average person retiring in 1940, they would stop working at around 77. As such, Social Security is increasingly losing its purpose as old-age insurance, as benefits stretch well into what is becoming late middle age for many. At the highest income levels (if your MAGI is greater than or equal to $500,000 for an individual or greater than or equal to $750,000 for a couple, you would pay an additional premium of $76.40 per month. Income has the biggest effect on premiums in this part of Medicare. Part B covers doctor visits and tests, outpatient care, home health services, and medical equipment.

The Medicare tax rate is 2.9% which is split between the employer and the employee. The net investment income tax, also known as the “unearned income Medicare contribution surtax,” is an additional 3.8% tax applied to net investment income. Like the additional Medicare tax, there is no employer-paid portion. Nearly everyone who works in the U.S. is required to pay Medicare taxes. Under the Federal Insurance Contributions Act (FICA), employers withhold Medicare and Social Security taxes from employees’ paychecks. The Self-Employed Contributions Act (SECA) mandates that self-employed workers pay Medicare and Social Security tax as part of their self-employment tax.

Your child turned 17 on December 30, 2022, and is a citizen of the United States and claimed as a dependent on your return. You cannot use the child to claim the CTC or ACTC because the child was not under age 17 at the end of 2022. If it is determined that your error was due to fraud, you will not be allowed to claim any of these credits for 10 years. Use Schedule 8812 (Form 1040) to figure your child tax credit (CTC), credit for other dependents (ODC), and additional child tax credit generally accepted accounting principles gaap (ACTC). The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.