Filing Form 8959 for the Additional Medicare Tax
For higher-income taxpayers, this guide clarifies the process for calculating the Additional Medicare Tax and reporting it correctly on your return using Form 8959.
Form 8959, Additional Medicare Tax, is used to calculate and report an extra tax on earnings for individuals with income exceeding specific levels. The form reconciles the total tax owed with any amount already paid through employer withholding. This ensures that higher-income earners contribute an additional percentage towards Medicare, separate from the standard tax paid by all employees and self-employed individuals.
Who Must File Form 8959
A taxpayer’s requirement to file Form 8959 is determined by their income level and filing status. The obligation arises when an individual’s Medicare wages, self-employment income, or Railroad Retirement Tax Act (RRTA) compensation surpasses a set threshold for their filing status.
The income thresholds that trigger the filing requirement vary by filing status. For individuals who are Single, Head of Household, or a Qualifying Widow(er), the threshold is $200,000. For those who are Married Filing Jointly, the combined income threshold is $250,000. A different threshold of $125,000 applies to individuals who are Married Filing Separately.
The filing requirement is based on the total of all applicable income. For example, if you have both Medicare wages from employment and net earnings from self-employment, you must combine them to determine if you exceed the threshold.
Information Needed to Complete Form 8959
Before filling out Form 8959, you need to gather financial information. The primary document for employees is Form W-2, and the amount needed is in Box 5, which reports total Medicare wages and tips. If you have more than one Form W-2, the amounts from Box 5 of all forms must be added together.
For individuals with income from self-employment, the figure needed is their net earnings, calculated on Schedule SE, Self-Employment Tax. The net earnings from self-employment reflect the profit from a business or freelance work after deducting business expenses. This figure is the self-employment income subject to the Additional Medicare Tax.
A third category of income subject to this tax is Railroad Retirement (RRTA) compensation. Individuals who received this compensation will need the total amount, which is found on Form W-2 in Box 14.
Calculating the Additional Medicare Tax
The calculation of the Additional Medicare Tax is structured across several parts on Form 8959, each for a specific type of income. The form guides the taxpayer through computing the tax owed on wages, self-employment income, and railroad retirement compensation separately before arriving at a total.
Part I of the form calculates the tax on Medicare Wages. You enter your total Medicare wages and subtract the income threshold for your filing status. The remaining amount is then multiplied by the tax rate of 0.9% to determine the tax owed on these wages.
Part II follows a similar process for self-employment income. You will input your net earnings and adjust this amount by any wages from Part I before comparing it to the filing status threshold. The 0.9% tax is applied to the self-employment income that exceeds the threshold not already accounted for by wages.
Part III is for calculating the tax on RRTA compensation, using the same 0.9% rate on income above the threshold. Part IV of Form 8959 sums the tax amounts from the preceding parts to arrive at the total Additional Medicare Tax liability.
Reporting and Paying the Tax
Once the total Additional Medicare Tax is calculated on Form 8959, the final figure must be transferred to your main income tax return, Form 1040. This amount is reported on Schedule 2, “Additional Taxes,” which incorporates the liability into your overall tax calculation.
An employer is responsible for withholding the Additional Medicare Tax from an employee’s wages that exceed $200,000 in a calendar year. This withholding is reported on Form W-2 and is subtracted from the total tax on Form 8959 to determine the remaining balance due.
If employer withholding is insufficient, or for self-employed individuals, the tax must be paid directly. This can be done by making estimated tax payments throughout the year or paying the full amount with your annual tax return. Failure to have paid enough tax during the year may result in an underpayment penalty.