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    QuickBooks Payroll: Additional Medicare Tax

    Article ID: 2001528

    Overview

    As an employer you are responsible for withholding an additional 0.9% Medicare tax from an employee's wages and compensation paid in excess of $200,000 in a calendar year.  Additional Medicare Tax is an employee paid tax (there is no company match) that began in tax year 2013 (a provision of the Affordable Care Act) and is still in effect tax year 2014.

    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 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.

    Good news!! Enhancements have been made with the latest QuickBooks release (QuickBooks 2014 R6 or later) with an active payroll subscription automating the steps that add the Medicare Employee Addl Tax payroll item.  Ensuring the payroll item is setup for each employee at the moment their paycheck is created.

    Tip:  To see which version of QuickBooks you have, press F2 on your keyboard.  Your QuickBooks 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?

    Be sure you have Payroll Update 21412 or later.

    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 (21412 or later).

    Is there an Additional Medicare Tax for tax year 2014?

    Yes.  The Additional Medicare Tax is in effect for tax year 2014.   

    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 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.

    The guide also includes information on federal tax forms that will include reporting of the Additional Medicare Tax.

    Our recommendation was to have the new payroll item set up before you created any paychecks in 2013. If you didn't, see

    Since this tax is still in effect for tax year 2014, be sure you have the payroll item set up before creating any paychecks in 2014.  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 2014.  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

    Where can I find instructions for setting up the Medicare Employee Addl Tax payroll item?

    Click here for the Additional Medicare Tax User Guide for QuickBooks.

    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 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 begins withholding the additional tax?

    No. The IRS does not require you to notify your employees about the additional withholding. However, QuickBooks 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 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?

    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 tax year 2013 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 24 - 29. 

     

    What do I do if I just discovered that I didn't withhold the tax on an employee's wages paid in 2013?

    14 comments

    Jo Ann4/11/2013

    30

    I was going to install the informaiton on the additional Medicare tax, but I wasn't understanding it. I called for help and was advised that since the additional Medicare tax was released with the payroll update there is nothing I have to do. In reading the above comments, it appears there is something that I have do to. PLEASE HELP.

    Reply

    Mary2/8/2013

    10

    What am I supposed to do about the last 6 paychecks that don't have the extra medicare withholding taken out? It says it is effective 1/1/13.

    Reply

    Susan2/20/2013

    50

    Hi Mary,

    I am an Intuit employee and saw your comment. As long as you have not paid any employee in excess of $200,000 in Medicare wages or compensation in 2013, you can follow the instructions in Additional Medicare Tax User Guide for QuickBooks to add the new payroll tax item and attach it to employee records. I hope this helps, thanks for your comment.

    Teresa2/11/2013

    10

    Should I go in and set up this tax as a default on the employee record?

    Reply

    Susan2/20/2013

    20

    Hi Teresa,

    I am an Intuit employee and saw your comment. Yes, the easiest way to ensure that the new payroll tax item gets added for new employees is to add it to your new-employee default settings. See Additional Medicare Tax User Guide for QuickBooks for steps on how to add the new payroll tax item and attach it to employee records. Thanks for your comment.

    Norm2/15/2013

    10

    Looks like the medicare increase of .9% was added on update 21301 for me?

    Reply

    Susan2/20/2013

    10

    Hi Norm,

    I am an Intuit employee and saw your comment. Yes, the new payroll item, Medicare Employee Addt Tax, was released with tax table update 21301. A couple of issues were identified with the opening and closing of payroll setup which were fixed in payroll updates 21302 and 21304. If you created the item with 21301 and have workers in Oregon or have custom ordered Earnings item in employee records, you may have additional steps to follow. See Additional Medicare Tax User Guide for QuickBooks for additional information. Thanks for your comment.

    Ameena4/3/2013

    10

    It appears that Ohio is not affected by the Medicare additional tax. Is this so or should I set this up for my employees here in Ohio.

    Reply

    Dale4/4/2013

    20

    Hi Ameena,

    This article will provide you details about the Additional Medicare Tax: Federal payroll tax law changes for tax year ending 2012 and tax year beginning 2013

    Hope this helps. Thanks for posting a comment.

    NIKKI5/8/2013

    10

    Doing payroll today I have an employee with o deductions on the set up page ...but there should still be deductions for medicare and soc sec. can you help me out. The payroll program is not taking anything out of gross for taxes at all. he did have deductions take out the last two paychecks.

    thanks nikki

    Reply

    Theresa5/13/2013

    10

    I opened Payroll Setup to add another group (didnít realize it needed to be done elsewhere) Now all my employees have a Liability Adjustment showing the Item Name as Medicare Employee Addl Tax, Amount of 0, Wage Base of 0, Income Subject to Tax has a different amount for each employee, and Memo says Payroll Checkup. Yet none of my employees will meet the income amounts requiring the additional tax. What do I need to do to correct this?

    Reply

    Glenda7/17/2013

    10

    Why isn't there a limit of $200,000.00 in the limit in the payroll items list? Did I miss something? The percentage of deductions of 0.9% is there but it doesn't have a set limit.

    Reply

    Jo Ann7/17/2013

    10

    Hi Glenda,

    There is a PDF document linked in the bullet called, "What steps should I take once I have the Payroll Update?" This document will give you step by step instructions on how to create the payroll item necessary for the additional tax.

    Hope this helps. Thanks for commenting.

    Comments can not be added at this time.

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