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Additional Medicare Tax for Incomes $200000 and Above

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Additional Medicare Tax for Incomes $200000 and Above

Description

  • Under the Patient Protection and Affordable Care Act (PPACA) as amended, a new provision to the Internal Revenue Code imposes an additional Medical tax increase on higher income individuals beginning January 1, 2013.
  • The employee portion of the Medicare tax will increase by 0.9% on the portion of wages paid over $200,000.
  • The additional tax is only withheld from the Employee.
  • The employer portion of the Medicare tax will not be subject to the Additional Medicare Tax.
  • To learn more about the Additional Medicare Tax, read the IRS FAQ: Questions and Answers for the Additional Medicare Tax

HOW TO SET UP THE EMPLOYEE'S ADDITIONAL MEDICARE TAX:

  1. Open up Batch Payroll and select the Employee Information.
  2. Select the Wage/Withholding Tab.
  3. In OST field of Applicable Taxes, enter the tax code M1 for each GP item to be included in total wages subject to medicare. 
    • The additional medicare applies to all wages contributing to an annual gross pay over $200,000.
    • If the OST column is already used by another tax (such as C1) then use OST2 or OST3 for the Additional Medicare.
  4. The M1 code should be repeated on each GP item subject to Medicare.
  5. Designate an available withholding field as the accumulator for this amount by entering the WH number in the (*) field to the right of the OST field.
    • The same WH # should be used for all the GP items subject to Medicare.
    • NOTE!  In the example below, OST1 is using WH2 to calculate and hold the Additional Medicare.  If WH2 is already in use, please select a different WH # as available in each Employee Wage/Withholding tab.
  6. Enter a description for that withholding item
    • Example 1:  If you are using WH2, enter the description as 'Add MED' and enter the corresponding number 2 in (*) field of OST.
    • Example 2: If you are using WH7, enter the description as "Add MED" and enter the corresponding number 7 in (*) field of OST.
  1. After setting this up, you will be able to see the Employee's Additional Medicare withholding calculations in different reports such as the Tax Deposit Screen, Payroll Journal Reports & Check Register.

  1. For withholdings that are exempt from Medicare, the M1 code can be entered on the W/H line to exclude the additional Medicare tax.

Please check  Publication 15  , section 15 for determining the correct treatment.

HOW TO PROCESS THE ADDITIONAL MEDICARE TAX:

Batch Payroll:

  • The amount of additional Medicare will be calculated automatically, once it is correctly set up for each Employee.
  • The program will withhold the additional Medicare from the Employee under the designated WH item.
    • This is the WH number indicated in the OST * column with the M1 code.
  • No matching Employer tax will be calculated since this is an Employee based tax only.

Manual Processing:

  • The amount will need to be entered manually in the designated WH item chosen in the Employee setup.
  • No matching Employer tax will be calculated since this is an Employee based tax only.

W-2

  • The additional Medicare tax will be added to the regular Medicare amount withheld in Box 6.
    • The additional Medicare MUST be set up correctly, and withheld from each check over $200,000, for the amounts to flow correctly to the W-2 Box 6.

See: How to pay the additional Medicare liability

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