Form 8959 - Additional Medicare Tax Reconcile Against Form W-2

The Additional Medicare Tax is an additional (0.9%) tax to wages, compensation, and self-employment income, if an individual's income exceeds the threshold amount for their individual filing status. This is a new tax added by the creation of the Affordable Care Act (ACA). For more information please use the following IRS link: Questions and Answers for the Additional Medicare Tax.

This tax is calculated on Federal Form 8959 Additional Medicare Tax and that form also reconciles the amount of tax owed against what an employer has already withheld from an employee's paycheck (and so is included as withholding in box 6 of the Form W-2 along with the regular Medicare tax withholding).

The threshold for calculating the additional tax is $250,000 for those filing with a status of Married Filing Jointly ($125,000 for those filing with a status of Married Filing Separately and $200,000 for those filing with a status of Single, Head of household or Qualifying widow(er)). 

The calculation of the additional tax can be a bit confusing because IRS Form 8959 Additional Medicare Tax does not actually "net" the difference between what your employer withheld and what the tax is in your situation, but transfers both amounts to the Federal Form 1040.  Adding to the confusion, are the instructions from the IRS to employers to calculate the amount to withhold from their employees’ pay using the threshold of $200,000.  They do this as the employer cannot be certain what filing status their employee will ultimately use on their tax return.

The IRS created Form 8959 to reconcile the amount actually owed against the amount deducted by the employer.  If you print your return (and the form is applicable in your situation), you will see this form as part of the return. In Part I they use the appropriate threshold amount for your filing status to calculate the additional tax on line 7. This amount is then transferred to line 18 of the form and from there to line 8 of IRS Schedule 2 (Form 1040) to add to your total tax due. Part V of the form calculates the additional amount your employer already withheld from your pay and that amount appears on line 24 and from there goes to line 17 of Federal Form 1040 to add to your total tax withheld. In this way the 2 amounts net out to reconcile what your actual additional tax is against the amount your employer withheld and included on your Form W-2.

Federal Form 8960 Net Investment Income Tax was also introduced in 2013. If this form is applicable to your return it will also print with the return. This form calculates the additional tax on net investment income (if applicable in your situation).