How does Turbotax calculate the Additional Medicare tax?

[PeterB-2022]

It seems turbotax calculates much higher tax due.

I have two W-2 forms (me and my spouse), by combining the total (box 6) we've already paid $11k.

Turbotax says we still owe $3500 tax, my understanding about the math of filing as married jointly case is: first $250000 is 1.45% rate, anything over that is 2.35%.

So let's say turbotax got our Total income as X, after deduction the total taxable income is Y,  so which is the actual math for Medicare Tax to be paid?

$250000 * 1.45% + (X - $250000) * 2.35%,  or 

$250000 * 1.45% + (Y - $250000) * 2.35%, or

$250000 * 1.45% + (Sum of Box 5 in all W-2, minus $250000, plus all other investment incomes after deduction) * 2.35% 

I am confused, because none of above maths result can match the amount from Turbotax, and both gave me much less tax due than turbotax, what did I miss ?

[Mike9241]

see form 8959.

shortcut

1) total of box 5 on all w-2s less $250,000. the net times 2.35%

2) add 3625 to line 1

3) total of box 6 on all w-2s

4) net additional tax subtract 3 from 2

example

total box 5  $600000

less $250000

net $350000

times 2.35%

result $8225

add $3625

result $11850

total box 6 $8700

$11850-8700= $3150 net additional owed 

say total withheld was $10,000 so net additional owed is now $1850

then schedule 1 line 11 would be $3150 ($350,000 - excess over $250,000 - times .9%)

$1300 ($10000less $8700) will appear as additional withholding on line  25c of the 1040

[PeterB-2022]

thanks Mike,

Based on your example, it seems the net additional owed can be calculated by math below:

$250000 * 1.45% + (Sum_of_all_Box_5_on_W2 - $250000) * 2.35% - Sum_of_all_Box_6_on_W2

Which calculated that I owe only less than $1000, but turbotax somehow tells me I owe another $3k, so still there is a gap.

[JohnB5677]

TurboTax uses the IRS worksheet to do the calculation.

The Additional Medicare Tax is calculated on Form 8959.

The base number is 

• W-2 Box 5 Medicare Wages
• plus unreported tips, 
• plus Uncollected Social Security and Medicare Tax on Wages  From 8919 line 6.

The allowable limits by filling status are:

• Single, HOH or Qualified Widow  -  $200,000
• Married filling Joint  -  $250,000
• Married filling Separate   -   $125,000

Subtract the allowable limit from the base number

This will yield the income subject to the additional tax.

The additional tax rate is 0.9%.  So multiply by .009 .

This will yield the amount of additional tax.

The screenshot below comes from the TurboTax worksheets.

       

Please contact us again with any additional questions or to provide some additional details.

[PeterB-2022]

Thanks John,

I think Turbotax is correct, just isn't clear, until I dig into the Form 8959.

Turbotax explains to me like this:

"You made Total payments of $XXX for 2023, which included W-2 withholdings of $YYY and other withholdings of $ZZZ."

I just realized that turbotax included "Withholding Reconciliation" on form 8959 line 24 (which is $ZZZ above), which is what I've over paid (by multiplying my total income with the base tax rate of 1.45%, vs box 6 of my W-2),  then turbotax explicitly calculate again of my Additional Medicare care tax expected to pay (the amount above $250000 for married filing jointly, multiplying by 0.9%), so actually it factored into the amount I already paid from all my W-2 and was trying to reassess additional tax part, which is correct then.

[nidhirawal]

Hi, i was amending my return and it is not autopopulating form 8959. This affects my amend, pls guide how to add additional medicare tax?

[DawnC]

Are you amending your 2023 tax return?   The 2024 amending software has not been finalized in TurboTax.

It is automatically calculated, and Form 8959 is automatically generated, based on your wages, railroad compensation, and self-employment income entered into TurboTax.   When you enter this income in excess of the thresholds, TurboTax creates the form.  

 A 0.9% Additional Medicare tax applies to Medicare wages, self-employment income, and railroad retirement (RRTA) compensation that exceed the following threshold amounts based on filing status:

• $250,000 for married filing jointly;
• $125,000 for married filing separately; and
• $200,000 for all other taxpayers.

If you receive both Medicare wages and self-employment income, calculate the Additional Medicare tax by:

1. Calculating the Additional Medicare tax on any Medicare wages in excess of the applicable threshold for the taxpayer's filing status, without regard to whether any tax was withheld;
2. Reducing the applicable threshold for the filing status by the total amount of Medicare wages received (but not below zero); and
3. Calculating the Additional Medicare tax on any self-employment income in excess of the reduced threshold.

Don't consider a self-employment loss for purposes of this tax. Compare railroad retirement (RRTA) compensation separately to the threshold.

All Medicare wages, railroad retirement (RRTA) compensation, and self-employment income subject to Medicare tax are subject to Additional Medicare tax, if paid in excess of the applicable threshold for the taxpayer's filing status. For more information on what wages are subject to Medicare tax, see the chart on Special Rules for Various Types of Services and Payments in Section 15 of Publication 15 (Circular E), Employer’s Tax Guide.  @nidhirawal 

[nidhirawal]

Hi Dawn, I was amending my 2023 tax and after everything is done, it is not auto populating form 8959. So from the emended tax, this value of additional Medicare tax (that was autopopulated in original), it is missing) and its increasing my refund value. Can you guide ?

[MarilynG1]

The 1040X will only reflect what was changed from your original 2023 return.  If you didn't add income in your Amended Return, you may not need form 8959, since you paid the Additional Medicare Tax in your original return. 

Did you change your Filing Status or add other deductions?  Since we can't see your return in this forum, we can present how the Additional Medicare Tax is calculated. 

In your amended return, you could step through the income interview to see if Form 8959 regenerates.

In TurboTax Desktop, you could go to FORMS and Open Form 8959 to see if it populates.  It could be that the changes you made no longer require the form.  If you believe your 1040X is incorrect, you could try starting the amend process again.  

Here's more info on How to Amend a Tax Return and How to Undo an Amendment. 

@nidhirawal 

[nidhirawal]

Hi Marilyn

thanks for your response. I was trying to amend my tax online through turbo tax online. when I look at the amended return vs original return, it completely takes away the additional medicare tax and increases my refund value. I was amending my tax as I had by mistake double counted a foreign income (which was already included in W2) and also double counted tax credit. these were the only 2 changes, income is still the same. @MarilynG1 

Regards

Nidhi 

[nidhirawal]

@MarilynG1  I was finally able to file the tax and it did show up but I am confused, on form 1040 x, I have a refund, on form 1040 I have to pay tax. overall on turbotax, it shows refund but in actual the amended return asks me to pay additional tax. what should I be following 1040x or 1040? The 1040 misses the tax that I already paid in Oct which was supposed to be subtracted. Any guidance !

[MarilynG1]

If in your Amended return, if you removed income that was double-entered in your original return, your income would go down and you may be due a refund.  However, If you also removed/reduced a credit, your income may go up and you could owe tax. 

You should add the tax you paid in October to your Amended Return, if it was not included in your initial filing.  Depending on what type of tax it was, go to Deductions & Credits > Other Taxes Paid. 

Once you Amend, the 1040X is the correct return, as it contains any corrections/additions not included in the original return.

Here's how to get an Expert Review of your tax return.

@nidhirawal