The Additional Medicare Tax was legislated as part of the Affordable Care Act, and has been in effect since 2013. Under this mandate, in addition to withholding Medicare tax at 1.45%, employers must withhold a 0.9% Additional Medicare Tax from wages paid to an employee once earnings reach $200,000 in a calendar year. Employers are required to begin withholding Additional Medicare Tax in the pay period in which employee wages reach $200,000 and continue to withhold it each pay period until the end of the calendar year. Additional Medicare Tax is only imposed on the employee. There is no employer share of Additional Medicare Tax. All wages that are subject to Medicare tax are subject to Additional Medicare Tax withholding if paid in excess of the $200,000 withholding threshold.
If you pay wages to employees who are subject to Medicare tax (no matter whether you think you will ever pay any of them over $200,000), you must set up the payroll item Medicare Employee Addl Tax in QuickBooks Desktop, if you haven't done so already.
To set up the tax, follow the three steps in the Additional Medicare Tax User Guide for QuickBooks Desktop.
Using QuickBooks Desktop 2014 R6 or later? Enhancements to QuickBooks Desktop 2014 R6 or later (with an active payroll subscription) automate the setup steps for the Medicare Employee Addl Tax payroll item. This ensures the payroll item is active for each employee at the moment their paycheck is created.
Tip: To see which version of QuickBooks Desktop you have, press F2 on your keyboard. Your QuickBooks Desktop version and release (R) number appear at the top of the Product Information window.
We encourage you to revisit this article periodically for any updates and additional details.
Frequently Asked Questions
How do I know if I am affected?
You are affected if:
- You pay wages to employees who are subject to Medicare tax.
What should I do now?
The new payroll item Medicare Employee Addl Tax was released in a payroll update in December 2012. If you are just now setting up the Additional Medicare Tax be sure you have the latest Payroll Update.
Is the Additional Medicare Tax still in effect?
Yes. The Additional Medicare Tax remains in place for the upcoming calendar year.
In addition to withholding Medicare tax at 1.45%, you must withhold a 0.9% Additional Medicare Tax from wages you pay to an employee in excess of $200,000 for the calendar year.
There continues to be no employer share of Additional Medicare Tax.
What steps should I take once I have the Payroll Update?
Refer to the Additional Medicare Tax User Guide for QuickBooks Desktop for instructions
- on setting up the new tax item, Medicare Employee Addl Tax,
- adding it to your employees who are subject to Medicare tax, and
- setting up employee defaults for when you hire and add new employees in QuickBooks Desktop.
Our recommendation has been to have the new payroll item set up before you created any paychecks in the current calendar year. If you didn't, see
- QuickBooks Desktop DIY: Additional Medicare Tax: Fixing prior year under withholding of taxes, or
- QuickBooks Desktop Assisted: Additional Medicare Tax - Fixing prior year under withholding of taxes
- QuickBooks Desktop DIY: Fixing Medicare Additional Tax missing from Paychecks in current calendar year, or
- QuickBooks Desktop Assisted Payroll: contact us. Click Account then click View Contact Info.
Where can I find instructions for setting up the Medicare Employee Addl Tax payroll item?
When does the IRS require me to start withholding the 0.9% Additional Medicare Tax?
How does QuickBooks Desktop know when an employee has reached the $200,000 threshold?
The Medicare Employee Addl Tax payroll item looks at the YTD (year-to-date) wages from the Medicare Employee payroll item.
As long as you have the Medicare Employee Addl Tax payroll item set up and attached to employee records, the payroll item will know when to begin withholding the additional 0.9%. The Medicare Employee Addl Tax payroll item is programmed to begin withholding the additional 0.9% once an employee's Medicare wages (Medicare Employee payroll item) for the calendar year are over $200,000.
Am I required to notify my employees when QuickBooks Desktop begins withholding the additional tax?
Why isn't QuickBooks Desktop using the $250,000 threshold for married couples when calculating the tax?
An employer is only required to withhold the additional 0.9% Medicare tax from employee wages that are in excess of $200,000 (see IRS FAQ).
The $250,000 threshold will apply when an individual is filing their personal income tax return (see IRS FAQ) if they have a filing status of married filing jointly.
Where can I get more information from the IRS about the Additional Medicare Tax requirements?
Will employees have to report Additional Medicare Tax when they file their personal federal income tax return?
Yes. Individuals will report Additional Medicare Tax on a new form developed by the IRS. Form 8959, Additional Medicare Tax, will need to be completed and attached to their income tax return.
Form 8959 and instructions for the current tax year are published on the IRS web site. Here are links to the final form and instructions.
Who is going to be required to file Form 8959, Additional Medicare Tax?
The Instructions for Form 8959 includes information on Who Must File.
Also, the IRS provides many FAQs to help individuals determine if they are required to file Form 8959, Additional Medicare Tax. You can refer your employees to the IRS Questions and Answers for the Additional Medicare Tax web site for guidance, following the Reporting Additional Medicare Tax section.