Additional Medicare Tax: Top 5 Things to Know
IJ Zemelman Dec-25-2014
The AMT (Additional Medicare Tax) began in 2013 for US Taxpayers whose income exceeds a specific threshold. In this piece we will outline the 5 most important things you need to know about the Additional Medicare Tax.
The most important question for US Taxpayers is: What are the thresholds which would make me liable for the Additional Medicare Tax?
The first thing you need to know is whether or not your income amount will leave you subject to the Additional Medicare Tax. Here are the income level thresholds which would make you liable for the AMT:
- If you are Married Filing Jointly (MFJ), your threshold amount is $250K
- If you are Married Filing Separately (MFS), your threshold amount is $125K
- If you single or Head of Household (HOH), your threshold amount is $200
- If you are a qualifying widow(er) with a dependent child, your threshold amount is $200K
How much is the Additional Medicare Tax?
The AMT is 0.9 per cent. The income subject to the AMT includes self-employment income, RRTA (Railroad Retirement) compensation, and earned wages. You must combine all these wages to see if your income exceeds the mandatory thresholds. It’s important to note that losses from self-employment tax may not be used to decrease your income levels. If you have RRTA compensation, you must prepare this compensation separately to the threshold amount. Refer to Form 8958, Additional Medicare Tax Form Instructions for specific examples.
Employers may withhold the AMT from your earnings if you earn more than $200K, but you are not exempt from the Additional Medicare Tax if you are MFJ or you have other income about which your employer is unaware.
There are circumstances in which you will have the Additional Medicare Tax withheld from your salary. This will happen if you are earning more than $200K a year from one employer. If you have multiple employers or you are married and filing a joint return, each of your employers will not consider your extra income or filing status; so you may still be liable for the AMT even if it wasn’t withheld during the year. If your combined income meets or exceeds the established thresholds, you will be responsible for filing your US income tax return appropriately and paying the AMT.
If your employer is withholding the AMT from your paycheck, you may still owe more to the IRS.
Depending on a variety of circumstances including your filing status and additional income, you may owe more tax than that which is being withheld by one or more employers. If you owe more of the AMT than is being withheld from your paycheck, you will be required to make estimated tax payments or ask your employer for a Form W-4, Employee’s Withholding Allowance Certificate, to request that additional taxes be withheld. If you did not have enough of the AMT withheld and you did not make quarterly estimated tax payments, you may be subject to an estimated tax penalty. For more information about tax withholding and estimated tax payments, refer to IRS Publication 505.
File Form 8959 with your US income tax return to pay the Additional Medicare Tax.
If you owe the AMT, you must file Form 8959 and attach it to your US income tax return. On Form 8959, you will be able to report the amount of the AMT that was withheld by your employer.
The best part - if you do not have earned income from U.S. sources (wages or self-employment), then your foreign income does not trigger the Additional Medicare Tax - likewise, you are not required to pay regular Medicare Tax. Regardless of the household income level.
I.J. Zemelman, EA is the founder of Taxes for Expats