Important Alerts:

Quick Search Results

    Not finding your answer?

    View More Results
    Top

    QuickBooks Payroll: Additional Medicare Tax

    Article ID: 2001528

    Overview

    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 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 2015 and 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 21501 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 (21501 or later).

    Is there an Additional Medicare Tax for tax year 2015?

    Yes.  The Additional Medicare Tax is in effect for tax year 2015.   

    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 has been to have the new payroll item set up before you created any paychecks in 2014. If you didn't, see

    Since this tax is still in effect for tax year 2015, be sure you have the payroll item set up before creating any paychecks in 2015.  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 2015.  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 2014 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 2014?

    Top Answers

    Resources

    Most Used Forms

    Find and download individual and federal forms required for your business.

    Payroll Tax Support

    Stay in compliance, ensure you're up to date on all necessary tax agency information from Federal to State agency

    ViewMyPaycheck

    Give employees 24/7 access to payroll information they need.