My wife and I live in Wisconsin (community property state). We file separate returns (but all of our income is community property, we don't have anything separate). I am trying to figure out how this interacts with additional medicare taxes from form 8959. Specifically, should each of our Medicare wages match on this form? I notice that TurboTax is using our individual Medicare wages from our individual W2s on each of our returns (which I believe is leading to a higher tax amount here than what it should be). I am wondering if I need to adjust this in some way (and if so, how). Thanks!
Since you are filing separately, your W-2's are reported on your individual returns.
If one (or both) of you are being assessed Additional Medicare Tax, it is based on the wages on that individual's Medicare Wages exceeding the threshold, so the tax would be added on that person's return only.
Unfortunately, there's nothing you can do about that.
Click this link for more info on Additional Medicare Tax.
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I am in a similar situation. I understand some people divide W2 income from each spouse between the two separate returns such that each spouse enters one-half of the W2s on each of their returns. This would results in less than the $125,000 threshold if we took this approach (as opposed to using form 8958 to make our adjustments). Is this proper and in accordance with the Code? Stated another way, if the form 8959 was generated after accounting for the community property adjustment, there would not be any additional Medicare tax owed. Is this an error in the TurboTax system or consistent with the tax code?
For tax year 2020, for example, if you are married and filing jointly, the tax only applies to income that exceeds $250,000 in combined earnings. On the other hand, if you were married filing separately, you could end up owing more tax, because the threshold is only $125,000.
Working through Form 8959
Form 8959 consists of three parts. Each part includes a short calculation to figure out how much Additional Medicare Tax you owe, if any. You complete only the part of the form that applies to the type of income you received.
- Fill out Part I if you received W-2 income.
- Fill out Part II if you received self-employment income.
- Fill out Part III if you received RRTA
If you had more than one type of income, such as W-2 income and self-employment income, you will have to complete all sections that apply. Once you complete Form 8959 and figure out the total Additional Medicare Tax you're responsible for, the final section of the form subtracts the tax you paid through withholding and estimated tax payments to determine if there is any Additional Medicare Tax due—which ultimately gets reported on your 1040 form.
Remember, TurboTax will handle all of these calculations and fill in all the right forms for you.
Adjustments for future years
If you paid too much based on your filing status, your employer cannot stop withholding your Additional Medicare Tax. However, overpayments are applied against the tax owed on your annual income tax filing and could lead to a tax refund.