Accountant Man -

I respectfully have to disagree with you.

Questions and Thoughts:

1. If ProSeries software is handling this properly, why did the 2013 and 2014 ProSeries software prepare Form 8959 and transfer the amount of over-withheld Medicare tax as an additional payment of income tax? The 8959 IS INCLUDED with the return filed and appears in the Forms In Use screen. Beginning with the 2015 program is when this stopped.

2. Why does the software diagnostic properly flag over-withheld SS tax from one employer as only recoverable from the employer but the diagnostic DOES NOT flag overwithheld Medicare tax?

3. Why would ProSeries (for a taxpayer NOT subject to the Additional Medicare Tax) make the entries on Form 8959 Part V and show the amount of over-withheld Medicare Tax on Line 24 and NOT FOLLOW that line instruction "Also include this amount with federal income tax withholding on Form 1040 line 16?

4. Just for grins I downloaded the 2018 Drake Tax software evaluation version and tested this. Drake does fill out Form 8959 and transfer the excess withheld to Form 1040 line 16.

5. The IRS website has a page entitled "Questions and Answers for the Additional Medicare Tax" (https://www.irs.gov/businesses/small-businesses-self-employed/questions-and-answers-for-the-addition...). Under who is required to file it states "If you are liable for Additional Medicare Tax and/or your employer withheld Additional Medicare Tax from your wages or compensation, you must file Form 8959". Note the OR YOUR EMPLOYER part.

6. From this same website under the question about if an employer discovers the error in a subsequent year what can the employer do, the answer states "No. If an employer withholds more than the correct amount of Additional Medicare Tax from wages paid to an employee and does not discover the error in the same year the wages were paid, the employer can not correct the error by making an interest-free adjustment. In this case, the employer should have reported the amount of Additional Medicare Tax withheld (including the over-withheld amount) on the employee’s Form W-2 for the prior year so that the employee may obtain credit for Additional Medicare Tax withheld. Additional Medicare Tax withholding will be applied against the taxes shown on the employee’s individual income tax return (Form 1040).

That is by filing Form 8959.

7. The Spring 2014 edition of the SSA/IRS Reporter discussed various scenarios of what employers can or can't do when an error has been made on over-withheld Medicare tax. The answers depended upon basically when the error was found. When the error was discovered after the calendar year of payment they stated that an employee can claim a credit for any over-withholdings of additional Medicare tax on his or her income tax return by filing Form 8959.

I believe that ProSeries began handling this issue incorrectly beginning with the 2015 software. Try out the following with the 2013 and 2014 software.

Gross/SS/MC Wages of $50,000
Use the correct FICA withheld of $3100
Use the over-withheld MC tax of $1175 vs the correct $725

Notice that the software applies the extra $450 to your tax payments.

Then, put in an excess amount of SS tax withheld. Run the diagnostic. You will be warned about the need to contact your employer for a refund but you will not get a diagnostic about the excess Medicare tax.

The final proof that ProSeries has an issue here to me was when the IRS questioned an unrelated matter on a clients tax return (which was resolved as no change) the IRS showed the overpaid Medicare tax as an additional payment of income tax and refunded it to the taxpayer. Since ProSeries did not include the Form 8959 with the tax return the IRS used the W-2 information supplied to them.