2020 Social Security and Medicare Tax Withholding Rates and Limits

The Additional Medicare Tax helps fund some elements of the Affordable Care Act. Incomes from wages, self-employment, and other compensation, including Railroad Retirement Board (RRB) compensation, all count toward the income that the IRS measures. As of 2013, the IRS requires taxpayers with higher earnings to pay more money into Medicare. This extra tax was announced as part of the Affordable Care Act and is known as the Additional Medicare Tax. Read on to learn more about this Medicare tax, including the rates, rules, and more. D has $150,000 in wages and E has $175,000 in self-employment income.

Where can I find IRS Form 8959?

• However, if married filing separate spouses made joint estimated tax payments, either spouse can claim all of the estimated tax paid, or they may agree to divide it between them.
• And if there are any opportunities for reducing the amount due, you’ll want to make sure you take full advantage of them.
• The fact that the rules for withholding are different also means it’s a good idea to calculate the amount of Additional Medicare Tax you’ll have to pay on your own.
• 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).
• Reduce the applicable threshold for the filing status by the total amount of Medicare wages received, but not below zero.
• By adjusting their withholding amounts, “taxpayers can ensure that the right amount is taken out of their pay throughout the year,” the IRS advised.
• Together, the Additional Medicare Tax and the Unearned Income Medicare Contribution Tax were projected to yield $210 billion in tax revenue over a decade, beginning in 2013.

If you do not have self-employment income, but you have RRTA compensation, proceed to Part III. If you have neither self-employment income nor RRTA compensation, go directly to Part IV. Enter the result here, then proceed to Part II (self-employment income), Part III (RRTA income) as applicable.

Working through Form 8959

All Medicare wages, railroad retirement (RRTA) compensation, and self-employment income subject to Medicare tax are subject to Additional Medicare tax, if paid in excess of the applicable threshold for the taxpayer’s filing status. For more information on what wages are subject to Medicare tax, see the chart on Special Rules for Various Types of Services and Payments in Section 15 of Publication 15, (Circular E), Employer’s Tax Guide. Some wages and fringe benefits are taxable to the employee for income tax purposes, but some additional medicare tax 2020 wages may not be taxable to the employee for Social Security and Medicare taxes, including the Additional Medicare Tax. You must exclude the wages not subject to Social Security and Medicare taxes when you calculate the wages subject to the Additional Medicare Tax as you work on payroll. Most employees who work in the U.S. must pay Social Security and Medicare taxes on their wages as contributions to their Social Security coverage.

To ensure that enough taxes are withheld, you should make estimated tax payments or request additional withholdings on form W-4. Some employees may have Additional Medicare Tax due in excess of the amount withheld. This additional tax must be paid on the individual’s personal income tax return. They may need to pay estimated taxes or change their W-4 form to account for the additional tax due. There is no limit on the amount of earnings subject to Medicare (hospital insurance) tax. The Medicare tax rate applies to all taxable wages and remains at 1.45 percent with the exception of an “additional Medicare tax” assessed against all taxable wages paid in excess of the applicable threshold (see Note).

• Wages, other compensation, and self-employment income that are subject to Medicare tax will also be subject to Additional Medicare Tax if in excess of the applicable threshold.
• The Additional Medicare Tax is 0.9%, and applies only to wages above a certain threshold.
• If you do not have RRTA income, proceed directly to Part IV.
• The Act provided a surcharge of 10% on federal corporate income taxes and personal income taxes as a measure to reduce the U.S. budget deficits and support the funding activity for the Vietnam War.
• After you join a Medicare drug plan, the plan will tell you if you have to pay a penalty and what your premium will be.
• This payment option might help you manage your monthly expenses, but it doesn’t save you money or lower your drug costs.

Employer and payroll service provider FAQs

There are no special rules for nonresident aliens and U.S. citizens living abroad for purposes of this provision. Wages, other compensation, and self-employment income that are subject to Medicare tax will also be subject to Additional Medicare Tax if in excess of the applicable threshold. Your “Medicare wages” are the part of your wages subject to Medicare taxes. In essence, they are your wages minus certain deductions, including premiums for medical and dental insurance and health savings accounts (HSAs).

If you are reporting with your spouse, or you have more than one Form W-2, enter the total of the amounts reported in Box 6. In Part V, we’ll reconcile what you’ve already paid with your total Medicare tax liability. If you filed Schedule SE, enter the amount from Part I, Line 6. If you reported a loss, enter ‘0.’ For multiple schedules, enter the total amount. The additional Medicare tax should not be confused with the alternative minimum tax on high incomes, which does not involve mandatory payroll withholding. To learn more, see the IRS webpage Questions and Answers for the Additional Medicare Tax.

How is the Additional Medicare Tax calculated?

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 and continue to withhold it each pay period until the end of the calendar year. For more information, see the Instructions for Form 8959 and Questions and answers for the Additional Medicare Tax. The employer is required to withhold Additional Medicare Tax on total wages, including taxable noncash fringe benefits, in excess of $200,000. Additional information on how to withhold tax on taxable noncash fringe benefits is available in Publication 15 (Circular E), section 5, and Publication 15-B, section 4. An individual will owe Additional Medicare Tax on wages, compensation and self-employment income (and that of the individual’s spouse if married filing jointly) that exceed the applicable threshold for the individual’s filing status.

For additional information, refer to the Instructions for Form PDF and to Questions and answers for the Additional Medicare tax. Retirable, Inc. (‘Retirable’) is an SEC registered investment advisor. By using this website, you accept our Terms and Conditions and Privacy Policy. Retirable provides holistic retirement planning services, which are available only to residents of the United States. You must be at least 18 years of age to become a Retirable Premium user.

Only a person who earns more than $200,000 has to pay this tax. That will mostly be a concern for people who are on the cusp of the income thresholds, he said. For financial planners and their clients, the challenge now is gauging how much of a benefit increase to expect and when to expect it, said Joe Elsasser, founder and president of Covisum, a Social Security claiming software company. RetireGuide doesn’t believe in selling customer information. However, as required by the new California Consumer Privacy Act (CCPA), you may record your preference to view or remove your personal information by completing the form below. Get money-saving tips, hard-to-find info and tactics for a successful retirement in our free weekly newsletter.