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Your path to complete financial prosperity begins now. To master the art of tax planning and transform your financial outlook, contact The OnlyFans Accountant for a free consultation. Want to maximize deductions, track expenses like a pro, save more, and navigate tax season like a boss? Use Part V to figure the amount of Additional Medicare Tax on wages and RRTA compensation withheld by your employer.
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Suppose you’re married filing jointly, and your combined wages are $300,000. Enter unreported tips from line 6 of Form 4137, Social Security and Medicare Tax on Unreported Tip Income. If you are filing a joint return, also include the amount from line 6 of your spouse’s Form 4137. All wages that are subject to Medicare tax are subject to Additional Medicare Tax to the extent they exceed the threshold amount for your filing status. For more information on what wages are subject to Medicare tax, see the chart, Special Rules for Various Types of Services and Payments, in section 15 ofPub. The NIIT applies to income from a trade or business that is (1) a passive activity, as determined under § 469, of the taxpayer; or (2) trading in financial instruments or commodities, as determined under § 475(e)(2).
How the Net Investment Income Tax is Reported and Paid
If you expect to cross income thresholds, planning ahead by increasing withholding or making estimated payments is critical. Non-cash income, such as certain fringe benefits, RRTA compensation, and tips, are all subject to this tax once thresholds are exceeded. There are no special exemptions for nonresident aliens or U.S. citizens living abroad-if the income is Medicare-taxable, this tax applies. The Additional Medicare Tax was introduced to help fund Medicare as part of the Affordable Care Act in 2013. It’s a surtax applied to high earners, specifically on wages, compensation, self-employment income, and other types of taxable income that exceed certain thresholds. If you didn’t report tips to your employer as required, you may be charged a penalty equal to 50% of the social security, Medicare, and Additional Medicare taxes due on those tips.
Part II: Additional Medicare Tax on Self-Employment Income
- All employees, employers and self-employed workers in the United States, regardless of citizenship or residency status, must pay Medicare taxes to fund the Medicare Hospital Insurance program.
- Typically, a surtax is charged on taxpayer incomes higher than a certain level at which normal income tax is paid.
- Taxpayer is not subject to the Net Investment Income Tax.
- Suppose you’re married filing jointly, and your combined wages are $300,000.
Kathleen and Liam are liable for Additional Medicare Tax on $20,000 of Liam’s self-employment income ($140,000 in self-employment income minus the reduced threshold amount of $120,000, as figured on line 12 of Form 8959). Kathleen and Liam owe Additional Medicare Tax of $180.00 ($20,000 x 0.9% (0.009), as figured on line 13 of Form 8959). Your employer must withhold Additional Medicare Tax on wages it pays to you in excess of $200,000 for the calendar year, regardless of your filing status and regardless of wages or compensation paid by another employer. A surtax is an additional tax imposed by the government on something already taxed. Typically, a surtax is charged on taxpayer incomes higher than a certain level at which normal income tax is paid. It can be calculated as a percentage of a certain amount or a flat dollar rate.
The Medicare tax funds are used to pay for Medicare Part A, which provides hospital insurance for the elderly and people with disabilities. People with higher incomes may also have to pay an additional Medicare tax of 0.9% to help pay for the Affordable Care Act. Taxpayers filing IRS Form 1040-PR or Form 1040-SS should enter this amount on Line 12, Part I of their respective forms. When reporting multiple amounts, include the total of all such amounts.
How do I complete IRS Form 8959?
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- If you have investment income and go over the MAGI threshold, the 3.8% tax will apply to your net investment income or the portion of your MAGI that goes over the threshold—whichever is less.
- Below are some filing considerations about IRS Form 8959.
- The Affordable Care Act added an extra Medicare surtax for people with higher incomes starting in January 2013.
- Taxpayers filing IRS Form 1040-PR or Form 1040-SS should enter this amount on Line 12, Part I of their respective forms.
Don is also liable for Additional Medicare Tax on $150,000 of self-employment income ($150,000 in self-employment income minus the reduced threshold of $0). Taxpayer’s modified adjusted gross income exceeds the threshold of $200,000 for single taxpayers by $70,000. Any federal income tax credit that may be used to offset a tax liability imposed by subtitle A of the Code may be used to offset the NII. However, if the tax credit is allowed only against the tax imposed by chapter 1 of the Code (regular income tax), those credits may not reduce the NIIT.
This form helps calculate and report the additional Medicare tax liability. Carl, a single filer, has $145,000 in self-employment income and $130,000 in wages. Therefore, Carl’s employer didn’t withhold Additional Medicare Tax. However, the $130,000 of wages reduces the self-employment income threshold Additional Medicare Tax to $70,000 ($200,000 threshold minus the $130,000 of wages). Carl is liable for Additional Medicare Tax on $75,000 of self-employment income ($145,000 in self-employment income minus the reduced threshold of $70,000).
If your employer pays you over $200,000 in a year, they must start withholding this tax, even if you file jointly and won’t meet the $250,000 threshold – employers do not take your spouse’s income into account when withholding. To report the Additional Medicare Tax, taxpayers use Form 8959 alongside their standard tax return (Form 1040 or 1040-SR). The IRS also requires employers to report withheld taxes on Form 941, which covers payroll taxes for the quarter. Self-employed people face a unique situation when it comes to Medicare taxes.
Where can I find IRS Form 8959?
Under the Self-Employment Contributions Act, self-employed individuals pay both the employer and employee portions of Medicare taxes and Social Security taxes. This means that high-income self-employed individuals are responsible for paying the 0.9% Additional Medicare Tax on their net earnings over the threshold. Kathleen and Liam are married and file a joint return. Kathleen has $130,000 in wages (included on line 4 of Form 8959). Liam has $140,000 in self-employment income (included on line 8 of Form 8959). The $130,000 of Kathleen’s wages reduces Liam’s self-employment income threshold to $120,000 ($250,000 threshold minus the $130,000 of wages, as figured on lines 9 through 11 of Form 8959).
Additional Medicare Tax
The Medicare Surtax applies a rate of 0.9% on earned income and a separate tax of 3.8% on investment income when MAGI crosses a certain limit. You can potentially dodge the Medicare 3.8% surtax by keeping your modified adjusted gross income (MAGI) below the threshold. Unlike other financial advisors, fiduciary planners prioritize your best interests. They’ll help you navigate tricky topics like taxable income, filing status, and social security benefits.