QuickBooks Desktop Payroll: Additional Medicare Tax
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 (21601 or later).
Is there an Additional Medicare Tax for tax year 2016?
Yes. The Additional Medicare Tax is in effect for tax year 2016.
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.
The guide also includes information on federal tax forms that will include reporting of the Additional Medicare Tax.
Our recommendation has been to have the new payroll item set up before you created any paychecks in 2015. 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
Since this tax is still in effect for tax year 2016, be sure you have the payroll item set up before creating any paychecks in 2016. You MUST set up the payroll item and attach it to your employees, before any of them reach $200,000 in Medicare wages and tips in 2016. This must be done in order for the taxes to be calculated and wages to be tracked for federal forms. If you didn't, see
- 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 11 & 31).
The $250,000 threshold will apply when an individual is filing their personal income tax return (see IRS FAQ 3) 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 tax year 2015 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. The IRS has a section called Reporting Additional Medicare Tax providing FAQs 26-31.
What do I do if I just discovered that I didn't withhold the tax on an employee's wages paid in 2015?
Affordable Care Act: Employer Mandates
Federal Payroll: 2015 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