Understanding the Additional Medicare Tax and Form 8959 Withholding Reconciliation

The U.S. tax code includes a variety of provisions designed to fund government programs, including Medicare. One such provision is the Additional Medicare Tax, which applies to high-income earners. If you or your clients earn above a certain threshold, understanding how this tax works—and how it’s reconciled on Form 8959—is crucial for accurate tax reporting and compliance.

What Is the Additional Medicare Tax?

The Additional Medicare Tax is a 0.9% surtax imposed on wages, compensation, and self-employment income that exceed certain thresholds based on filing status. This tax was introduced as part of the Affordable Care Act (ACA) and helps support Medicare funding.

Who Owes the Additional Medicare Tax?

The tax applies to income over the following thresholds:

Filing Status Threshold Amount

  • Single - $200,000

  • Married Filing Jointly - $250,000

  • Married Filing Separately - $125,000

  • Head of Household - $200,000

  • Qualifying Widow(er) - $200,000

Employers are required to withhold this tax from an employee’s wages only when the employee’s earnings exceed $200,000 in a calendar year. However, an employer does not take the taxpayer’s filing status or combined household income into account, which can lead to either over-withholding or underpayment—both of which are reconciled on Form 8959.

Reconciling the Additional Medicare Tax on Form 8959

Form 8959, Additional Medicare Tax, is used to calculate the total Additional Medicare Tax owed and compare it to what was already withheld. This ensures the correct amount is reported and paid when filing a tax return.

How Form 8959 Works

Form 8959 is divided into three sections:

  1. Part I – Wages, Compensation, and Railroad Retirement (RRTA) Taxed

    • This section determines the Additional Medicare Tax due on wages and compensation exceeding the threshold.

    • If you have multiple employers, their withholdings are not combined, meaning under-withholding may occur.

  2. Part II – Self-Employment Income

    • Self-employed individuals calculate their Additional Medicare Tax separately from wage earners.

    • The Medicare tax deduction allowed on Schedule SE (Self-Employment Tax) does not reduce Additional Medicare Tax liability.

  3. Part III – Total Additional Medicare Tax and Withholding Reconciliation

    • This section reconciles the total Additional Medicare Tax owed with the amount already withheld by an employer.

    • If an overpayment occurred, it can be refunded. If underpaid, the remaining balance is included in the overall tax liability.

Common Issues and Taxpayer Considerations

1. Over-Withholding

A taxpayer with a single employer who earns more than $200,000 will have Additional Medicare Tax withheld automatically. However, if their total income remains below the applicable threshold (for example, if they are married filing jointly and their spouse has little or no income), they may be entitled to a refund when reconciling Form 8959.

2. Underpayment for Multiple Jobs or Joint Filers

If a taxpayer has multiple jobs, each employer will only withhold based on the income they pay, without considering combined earnings. This means that if their total income exceeds the threshold across multiple jobs, they may owe additional tax when filing.

Example:

  • Taxpayer has two jobs:

    • Employer A: $180,000 (no Additional Medicare Tax withheld)

    • Employer B: $90,000 (no Additional Medicare Tax withheld)

    • Combined total: $270,000 (exceeds $250,000 MFJ threshold)

  • No Additional Medicare Tax was withheld, so the taxpayer must pay the 0.9% tax on the $20,000 excess when filing Form 8959.

3. Self-Employed Individuals Must Pay Both Portions

Self-employed individuals owe the 0.9% Additional Medicare Tax on top of the regular 2.9% Medicare tax. However, unlike Social Security tax, there is no employer-matching portion for this surtax.

4. Estimated Tax Payments May Be Necessary

Because under-withholding is common among self-employed individuals and dual-income households, making estimated tax payments throughout the year can prevent a surprise tax bill when filing.

Need Help Navigating Additional Medicare Tax?

If you or your clients have questions about how the Additional Medicare Tax applies to their situation, proper withholding strategies, or completing Form 8959, our team of tax professionals is here to help! Contact us today for expert guidance and personalized tax planning.

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