Medicare Tax Calculations Over $200,000.00
Calculations for an Employee With Full Medicare Pickup
- Determine whether the employee has full or partial pickup.
- Determine the withholding threshold ($200,000.00).
- Determine the Total YTD (the calculated YTD + this payroll's Applicable Gross).
- YTD applicable gross (including pickup) + applicable gross on the pay report
- Determine the employer withholding amount.
- Determine if employee is already over the threshold or if this pay will put them over - or not over.
- If the payroll forces the employee to exceed the threshold, determine the amount of applicable gross that over threshold.
- Calculate employer pickup percentage from tables.
- Calculate the employer pickup under the threshold.
- Calculate the employer pickup over the threshold (the extra .9% (0.009) of Medicare over $200,000.00).
- Inflate the under amounts.
- Inflate the over amounts.
- Calculate the inflated amount = Inflated under + Inflated over.
- Calculate the payroll item applicable gross = Inflated amount.
- Calculate the pickup amount = Inflated amount under x Employer pickup percent under + Inflated amount over x Employer pickup percent over.
- Set pay item values for updated amounts.
Calculations for an Employee Without Medicare Pickup
- Determine the withholding threshold ($200,000.00).
- Determine the Total YTD (the calculated YTD + this payroll's Applicable Gross).
- Determine if employee is already over the threshold or if this pay will put them over - or not over.
- If the payroll forces the employee to exceed the threshold, determine the amount of applicable gross that over threshold.
- Calculate the additional Medicare amount. Additional Medicare amount = Applicable gross over $200,000 x the extra .9% (0.009).
The system determines if it should do the threshold amounts based on the non-inflated gross.
Example of an Employee's pay taking them over the $200,000
- Payroll Item YTD Applicable Gross (including pickup) + Applicable Gross on the pay report
$48,668.40 + $155,420.69 = $204,089.09
2. Applicable Gross over $200,000
$204,089.09 - $200,000 = $4,089.09
3. Applicable Gross under $200,000
$200,000 – $48,668.40 = $151,331.60
4. Employer Pickup Percentage
.029 (2.9 / 100) - 0.0145 = 0.0145
Employer Pickup Percent Under Threshold
0.0145
Employer Pickup Percent Over Threshold
0.0145 + 0.009 = 0.0235
5. Employer Inflated Percent Under Threshold
1 - 0.0145 = 0.9855
Employer Inflated Percent Over Threshold
1 - 0.0235 = 0.9765
6. Inflated Amount Under Threshold
$151,331.60 / 0.9855 = $153,558.19
7. Inflated Amount Over Threshold
$4,089.09 / 0.9765 = $4,187.50
8. Inflated Amount
$153,558.19 + $4,187.50 = $157,745.69
9. Pickup (shown as employer pickup on earnings register)
$2,226.59 ($153,558.19 * 0.0145) + $98.41 ($4,187.50 * 0.0235) = $2,325.00
10. Pay report employer amount (includes pickup amount)
$2,325.00 + $2,287.31 ($157,745.69 * 0.0145) = $4,612.31
Example of an Employee with Full Medicare Pickup Calculation for W2 totals
The $200,000.00 threshold does not get met until the uninflated gross reaches $200,000.00, at which point the inflated gross would be:
$200,000.00 / 0.9855 = $202,942.67
Total YTD Medicare (Medicare Tax Payroll Item) Applicable Gross = $213,095.92 - $202,942.67 = $10,153.25 (the amount over the threshold)
$202,942.67 x 0.0145 = $2,942.67 for Employee and Employer Share
$10,153.25 x 0.0145 = $147.22 for Employer Share over the threshold
$10,153.25 x 0.0235 (.0145 + .009) = $238.60 for Employee Share over the threshold
$2,942.67 + $147.22 = $3,089.89 for Total Employer Share
$2,942.67 + $238.60 = $3,181.27 for Total Employee Share
Since the employee has full Medicare pickup (the employer is paying both the employee and employer share):
Total Employer Amount is $3,089.89 + $3,181.27 = $6,271.16
Taxable Employer Pickup is the total Employee Amount of $3,181.27
The W2 report shows $3,181.28 for the Employee Amount, all of which is Employer Pickup (off by 1 penny due to rounding)
The employee gets taxed more on the wages over $200,000.00, but the employer does not.
W2 Report:
Line 5D) QTD Medicare Taxable Wages Subject To Additional Withholding Calculations
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