Make too much money, higher Medicare tax for you: IRS Form 8959
September 15, 2023How to File IRS Form 8959 and What You Need to Know
IRS Form 8959 is a tax form that you may need to file if you have high income from wages, self-employment, or certain other sources. This form is used to calculate the additional Medicare tax that you may owe on your earnings above a certain threshold. In this article, we will explain what IRS Form 8959 is, who needs to file it, how to fill it out, and what are the implications of this tax for your finances.
Table of Contents
- What is IRS Form 8959?
- Who needs to file IRS Form 8959?
- How to fill out IRS Form 8959?
- What are the implications of the additional Medicare tax?
- How to reduce your additional Medicare tax liability?
- Where to get more help with IRS Form 8959?
What is IRS Form 8959?
IRS Form 8959 is a tax form that was introduced in 2013 as part of the Affordable Care Act (ACA). The ACA created a new tax called the additional Medicare tax, which is a 0.9% surtax on certain types of income above a specified threshold. The purpose of this tax is to help fund the Medicare program, which provides health insurance for seniors and people with disabilities.
The additional Medicare tax applies to the following types of income:
- Wages, salaries, tips, commissions, bonuses, and other compensation from employment
- Self-employment income from a trade or business
- Railroad retirement (RRTA) compensation
The additional Medicare tax does not apply to other types of income, such as interest, dividends, capital gains, pensions, annuities, social security benefits, or rental income.
Who needs to file IRS Form 8959?
You need to file IRS Form 8959 if you have any of the income types mentioned above and your total income exceeds the following thresholds:
| Filing status | Threshold amount |
|---|---|
| Single | $200,000 |
| Married filing jointly | $250,000 |
| Married filing separately | $125,000 |
| Head of household | $200,000 |
| Qualifying widow(er) with dependent child | $200,000 |
The threshold amounts are based on your modified adjusted gross income (MAGI), which is your adjusted gross income (AGI) plus any foreign earned income exclusion, foreign housing exclusion or deduction, or income excluded by residents of American Samoa or Puerto Rico.
Note that the threshold amounts are not indexed for inflation, so they remain the same for every tax year.
How to fill out IRS Form 8959?
To fill out IRS Form 8959, you will need the following information:
- Your W-2 forms from all your employers that show your wages and the amount of Medicare tax withheld from your paychecks
- Your Schedule SE from your tax return that shows your self-employment income and the amount of self-employment tax you paid
- Your Schedule R from your tax return that shows your railroad retirement compensation and the amount of RRTA tax you paid
- Your MAGI from your tax return or from the worksheet in the instructions for Form 8959
- The threshold amount for your filing status (see above)
The form has four parts:
- Part I: You calculate the amount of your wages, self-employment income, and railroad retirement compensation that are subject to the additional Medicare tax. You do this by subtracting the threshold amount from your MAGI and then allocating the excess amount to each type of income in proportion to their share of your total income.
- Part II: You calculate the amount of additional Medicare tax you owe on each type of income by multiplying the amounts from Part I by 0.9%.
- Part III: You calculate the total amount of additional Medicare tax you owe by adding up the amounts from Part II.
- Part IV: You compare the total amount of additional Medicare tax you owe from Part III with the total amount of additional Medicare tax that was withheld from your paychecks, paid with your estimated tax payments, or paid with a request for an extension of time to file. If the former is more than the latter, you have a balance due and you must pay it with your tax return. If the latter is more than the former, you have an overpayment and you can claim it as a refund or apply it to your next year’s estimated tax.
Here is an example of how to fill out IRS Form 8959 for a single taxpayer who had $220,000 of wages, $50,000 of self-employment income, and $10,000 of railroad retirement compensation in 2023. The taxpayer’s MAGI was $280,000 and the threshold amount for single filers was $200,000.
| Part I | ||
| 1 | Enter your modified adjusted gross income (see instructions) | $280,000 |
| 2 | Enter the threshold amount for your filing status (see instructions) | $200,000 |
| 3 | Subtract line 2 from line 1. If zero or less, enter -0- | $80,000 |
| 4 | Add lines 7 and 8 of Form W-2 from all employers and enter the total | $220,000 |
| 5 | Enter the amount from Form 1040, line 9 | $50,000 |
| 6 | Enter the amount from Form RRB-1099, box 7 | $10,000 |
| 7 | Add lines 4, 5, and 6 | $280,000 |
| 8 | Enter the smaller of line 3 or line 7. This is your amount of wages and compensation that are subject to additional Medicare tax | $80,000 |
| 9 | Multiply line 8 by 0.009 (0.9%). This is the additional Medicare tax you owe. | $720 |
What are the implications of the additional Medicare tax?
The additional Medicare tax is a 0.9% surtax that applies to certain high-income taxpayers who have wages, self-employment income, or compensation that exceeds a threshold amount. The threshold amount is $200,000 for single filers, $250,000 for married couples filing jointly, and $125,000 for married couples filing separately. The additional Medicare tax is calculated on the excess amount above the threshold, and it is withheld from your paycheck or paid with your estimated taxes. The additional Medicare tax is not deductible as an adjustment to income, and it does not affect the amount of regular Medicare tax you pay.
How to reduce your additional Medicare tax liability?
There are some strategies that you can use to lower your additional Medicare tax liability, such as:
- Contributing more to a qualified retirement plan, such as a 401(k), 403(b), or IRA. This will reduce your taxable wages or self-employment income.
- Deferring income to a future year, if possible. For example, you can ask your employer to pay you a bonus in January instead of December, or you can delay invoicing your clients until after the end of the year.
- Claiming deductions that reduce your adjusted gross income (AGI), such as student loan interest, alimony payments, or health savings account (HSA) contributions.
- Spreading out your income over multiple years by using an installment sale agreement, if you sell a property or a business.
Where to get more help with IRS Form 8959?
If you are subject to the additional Medicare tax, you will need to file IRS Form 8959 with your tax return. This form will help you calculate the amount of additional Medicare tax you owe and report it on your Form 1040. You can find more information and instructions on how to fill out Form 8959 on the IRS website. You can also use a tax software program or hire a professional tax preparer to help you with this form and other tax issues.
