Additional Medicare Tax 2022: What’s New?

As an employer, you have a lot on your plate. Your to-do list can seem endless, from managing your team to ensuring your business runs smoothly.

But have you ever been sitting on your couch, enjoying a movie night with your family, when suddenly you’re hit with the realization that you might not fully understand the taxes you’re responsible for as an employer?

It can be daunting, but don’t worry – you’re not alone.

In this blog post, we’ll embark on a journey to understanding the Additional Medicare Tax together.

So grab a bowl of popcorn, and let’s get started.

What is Additional Medicare Tax (AMT)?

The Additional Medicare Tax is a tax on earned income to fund the Medicare program.

The tax was introduced as part of the Affordable Care Act and took effect in 2013.

It applies to individuals with wages and self-employment income over a certain threshold.

For 2021 and 2022, the threshold is $200,000 for single filers and $250,000 for married couples filing jointly. Individuals who earn over the threshold amount may owe an additional 0.9% tax on their income tax.

Exploring 2022 Updates

The threshold amounts for the Additional Medicare Tax are not changing for 2022. The AMT rate remains the same at 0.9%.

In 2022, you must know the breakdown of Social Security and Medicare taxes that your employees will pay. Here’s a summary of what to expect:

• Employees will pay a 6.2% Social Security tax on the first $147,000 of wages, announced by the Social Security Administration. The maximum tax for Social Security is $9,114.
• Employees will pay 1.45% Medicare tax on the first $200,000 of wages ($250,000 for joint returns; $125,000 for married taxpayers filing a separate return).
• For medicare wages received over $200,000 ($250,000 for joint returns; $125,000 for married taxpayers filing separately), employees will pay 1.45% Medicare tax on wages plus an additional 0.9% on the portion of wages that exceeds a certain threshold.

How Additional Medicare Tax Interacts with Federal Insurance Contributions Act (FICA)

The FICA tax includes both Medicare and Social Security taxes, which are used to fund retirement, disability, and healthcare benefits for eligible individuals.

The FICA tax is divided into two parts: the employee portion and the employer portion.

The employee portion of FICA taxes is 6.2% for Social Security and 1.45% for Medicare taxes, and the employer portion is the same rate.

The Additional Medicare Tax applies to individuals who earn over a certain threshold amount based on their filing status.

For wages over the threshold amount, the employee is responsible for paying an additional 0.9% in Medicare taxes, and the employer is responsible for withholding the extra tax.

Withholding Additional Medicare Tax 2022

As an employer, it’s your responsibility to withhold the correct amount of Medicare taxes, including the Additional Medicare Tax, from your employees’ wages.

If an employee’s wages exceed the threshold amount for their filing status, you must withhold an additional 0.9% in Medicare taxes on the amount that exceeds the threshold.

Obviously, keeping accurate payroll records is vital for any employer, as it helps ensure that taxes are being calculated and withheld correctly.

Example of Additional Medicare Tax

Let’s examine how the Additional Medicare Tax works for different filing statuses.

Single Filer

Suppose your employees are single and have wages of $220,000 for 2022.

If an employee’s personal wages for the year equal their Medicare wages, you will withhold 1.45% in regular Medicare taxes on all their salaries, which equals $3,190 for 2022.

The employer will also withhold an additional 0.9% in Medicare taxes on the amount that exceeds $200,000, which is $20,000 in this case.

The Additional Medicare Tax withheld would be $180. The employee would have $3,370 in Medicare taxes withheld from their wages for the year.

Married Filing Jointly

Suppose a married couple files jointly and earns $300,000 in wages for 2022.

You will withhold 1.45% in regular Medicare taxes on all wages, which equals $4,350.

You will also withhold an additional 0.9% in Medicare taxes on the amount that exceeds $250,000, which is $50,000 in this case.

The Additional Medicare Tax withheld would be $450. The couple would have $4,800 in Medicare taxes withheld from their wages for the year.

Married Filing Separately

Suppose your employees are married and file separately from your spouse. Their wages are $120,000 for 2022.

The spouse’s employer will withhold 1.45% in regular Medicare taxes on all wages, which equals $1,740.

The employer will also withhold an additional 0.9% in Medicare taxes on the amount that exceeds $125,000, which is $0 in this case, since the spouse’s income is under the threshold amount.

The spouse would have $1,740 in Medicare taxes withheld from their wages for the year.

Remember that if the other spouse also earns income, their income would need to be considered when determining whether the couple exceeds the threshold amount for the Additional Medicare Tax.

If the couple exceeds the threshold amount, you would need to withhold an additional 0.9% in Medicare taxes on the amount that exceeds the applicable threshold for the couple’s filing status.

By understanding how to calculate the Additional Medicare Tax for different filing statuses, you can ensure that your employees’ taxes are accurately calculated and withheld.

Impact of the Additional Medicare Tax on Employers

You are responsible for withholding the Additional Medicare Tax from employees’ wages if the wages exceed the applicable threshold. You must also match the Additional Medicare Tax on wages over the threshold amount.

Employer Responsibilities

It would help if you withheld Additional Medicare Tax from employees’ wages in the pay period in which the wages exceed the applicable threshold.

Also, you must report the Additional Medicare Tax on employees’ Forms W-2 and deposit the withheld taxes with the IRS.

If your employees’ compensation exceeds the threshold amount, they must report the additional medicare tax on form 8959 and submit it with their tax return.

You must register and pay your share of the Additional Medicare Tax on the same schedule as regular Medicare tax deposits.

Final Thoughts

The Additional Medicare Tax can be confusing, but it’s essential to understand how it works and how it may affect you.

You may also be subject to your net investment income tax if you have self-employment income.

Consult with a tax professional if unsure about your Additional Medicare Tax liability.

Remember, the threshold amounts for the Additional Medicare Tax are not changing for 2022, but the income brackets for the regular Medicare tax are increasing. Keep this in mind when estimating your tax liability for the year.

As always, staying updated with tax laws and regulations changes is crucial. Stay informed, and don’t hesitate to seek help if you need it.