Tuesday, August 20, 2013

New IRS Form 8959 - Additional Medicare Tax

The IRS has issued a draft of its new Form 8959 which will be used to calculate the portion (if any) of the Medicare Tax W-2 withholding which may be applied against income tax liability arising from the 3.8% surtax on certain high-income taxpayers.

The issue for taxpayers and tax preparers is that the medicare surtax is an addition to the regular income tax which applies, so it is included in the calculation of required payments/withholding necessary to avoid an
underpaid tax penalty.  If the payroll system gets it right and withholds more than the otherwise required 1.45% on payroll to which the surtax applies, the Form 8959 then Identifies this supplemental medicare withholding included in box #6 on the W-2 form and reports it as part of the total federal income tax withholding on line #62 of Form 1040.

Likewise, there is a separate section on the form for calculating the portion (if any) of the medicare tax on self-employment and/or railroad retirement income which is supplemental and, therefore, eligible for
reclassification as income tax withholding reported on line #62.

This form, although complicated in presentation because almost everything associated with Obama Care is complicated, appears to be something which good tax preparation software can handle without the active involvement of the tax preparer.

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