Medicare Tax Calculations Over $200,000.00

Calculations for an Employee With Full Medicare Pickup 

1. Determine whether the employee has full or partial pickup.
2. Determine the withholding threshold ($200,000.00).
3. Determine the Total YTD (the calculated YTD + this payroll's Applicable Gross). 
   
   1. YTD applicable gross (including pickup) + applicable gross on the pay report
4. Determine the employer withholding amount.
5. Determine if employee is already over the threshold or if this pay will put them over - or not over.
6. If the payroll forces the employee to exceed the threshold, determine the amount of applicable gross that over threshold.
7. Calculate employer pickup percentage from tables.
8. Calculate the employer pickup under the threshold.
9. Calculate the employer pickup over the threshold (the extra .9% (0.009) of Medicare over $200,000.00).
10. Inflate the under amounts.
11. Inflate the over amounts.
12. Calculate the inflated amount = Inflated under + Inflated over.
13. Calculate the payroll item applicable gross = Inflated amount.
14. Calculate the pickup amount = Inflated amount under x Employer pickup percent under + Inflated amount over x Employer pickup percent over.
15. Set pay item values for updated amounts.

Calculations for an Employee Without Medicare Pickup 

1. Determine the withholding threshold ($200,000.00).
2. Determine the Total YTD (the calculated YTD + this payroll's Applicable Gross).
3. Determine if employee is already over the threshold or if this pay will put them over - or not over.
4. If the payroll forces the employee to exceed the threshold, determine the amount of applicable gross that over threshold.
5. Calculate the additional Medicare amount.  Additional Medicare amount = Applicable gross over $200,000 x the extra .9% (0.009).

Example of an Employee's pay taking them over the $200,000

1. 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: