Along with the proposed regulations on the 0.9% additional Medicare tax, the IRS has updated and supplemented its questions and answers regarding this new tax. See all the questions and answers at the IRS website.
Withholding and depositing. The latest FAQs stress that the additional tax applies per employee. So, for example, if a married couple works for the same employer and each earns $150,000, you still don’t withhold the additional tax, because neither employee’s wages exceed $200,000, even though you know that their combined income exceeds $250,000.
While the IRS is planning to add a line to Form 941 to report the additional Medicare tax, the FAQs note that for tax deposit purposes, the regular and additional Medicare taxes are combined.
Interest-free adjustments. The FAQs clarify these points regarding making interest-free adjustments of over- or underpaid additional Medicare tax.
- If you underwithhold the additional taxes and discover the error in the same year the wages are paid, withhold the difference from the employee and file Form 941-X to make an interest-free adjustment. But you must still report and pay the correct amount of tax, even if you can’t withhold the correct amount of tax. If you pay the tax without withholding it, it’s up to you and the employee to work out a settlement.
- As with income tax withholding, if you underwithhold the additional taxes and don’t discover the error during the same year, you aren’t liable for the undercollection if you can show that the employee paid the tax. However, you are still liable for related penalties.
- If you overwithhold the additional taxes and you don’t repay the employee before the end of the year, don’t file Form 941-X to correct the error. Instead, report the total amount of Medicare tax withheld on the employee’s W-2s in Box 6. The employee will claim a credit for the overwithheld additional tax on his or her 1040.