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.
As a default, the Medicare Employee Addl Tax payroll item is set-up for all employees, regardless of their annual wages.
We encourage you to revisit this article periodically for any updates and additional details.
Frequently Asked Questions
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?
Once you have the latest payroll update, QuickBooks will automatically have the item entered for your employees affected.
Our recommendation has been to have the new payroll item set up before you created any paychecks in the current calendar year. If you did not have the item and created paychecks, 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
Where can I find instructions for setting up the Medicare Employee Addl Tax payroll item?
Quickbooks 2016 and later setup the item for you
When does the IRS require me to start withholding the 0.9% Additional Medicare Tax?
You are required to begin withholding the additional 0.9% tax on the paycheck on which you first pay wages and compensation in excess of $200,000 to an employee.
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.
No. The IRS does not require you to notify your employees about the additional withholding. However, QuickBooks Desktop will display this payroll item on employees' paychecks and pay stubs, so they will see when the additional tax is withheld.
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?
Go to the IRS Questions and Answers for the Additional Medicare Tax web site. The IRS provides Basic FAQs, Individual FAQs, and Employer and Payroll Service Provider FAQs.
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.
Affordable Care Act: Employer Mandates
Federal Payroll: 2016 Year-End Preparation and Planning for a New Tax Year
Desktop DIY: Additional Medicare Tax: Fixing prior year under withholding of taxes
Recover Medicare Additional Tax across years
Desktop DIY: Fixing Medicare Additional Tax missing from Paychecks in current calendar year