Medicare tax for high income earners - am I calculating this correctly?

Wait, so if the employer only starts withholding at $200k but the MFS threshold is $125k, doesn't that mean OP will owe more at tax time since they didn't have enough withheld? Or am I misunderstanding something?

You're absolutely right about the potential underwithholding. The employer is only required to withhold the Additional Medicare Tax once wages exceed $200,000, regardless of the employee's filing status. Since OP is Married Filing Separately with a threshold of $125,000, and their income is $167,000, they will indeed owe Additional Medicare Tax on $42,000 at tax time if it wasn't adequately withheld. This is one of those situations where the withholding rules don't perfectly align with the actual tax liability, which can create a surprise tax bill when filing.

How does taxr.ai handle the employer Medicare withholding threshold vs the actual tax threshold difference? That's what confuses me the most about this whole additional Medicare tax thing.

I'm a bit skeptical about tax tools like this. Did it actually give you different advice than what you'd get from the IRS site or regular tax software? And how does it access your documents - do you have to upload everything?

Their system specifically highlights when your employer's withholding threshold ($200k) differs from your actual tax threshold based on filing status. It creates a side-by-side comparison showing what was withheld versus what will be due, so you can plan accordingly. Regarding your question about unique advice, yes it absolutely did. Unlike generic tax software that just asks for numbers, taxr.ai actually interpreted the pay stub entries and flagged that my employer was categorizing certain benefits incorrectly for Medicare tax purposes. It's document-focused, so you upload your forms and it does deep analysis on the actual entries. All secure and encrypted of course.

How does that even work? Does the IRS know you're using a service like this? I've been trying to call about a similar Medicare tax question but keep getting disconnected.

Sounds like a scam. Why would I pay some company to call the IRS for me when I can just keep trying myself? And how do you know the "IRS agent" was actually legit? No offense but this sounds super sketchy.

It works by using an automated system that navigates the IRS phone menu and waits on hold in your place. When they reach a human agent, they connect you with a direct call. The IRS doesn't know or care how you got through - to them it's just another call in their queue. The agents are definitely legitimate IRS employees. I verified this by checking the information they provided against official IRS publications, plus they had access to my tax account information when I provided my verification details. I understand the skepticism - I felt the same way initially. But when you've been trying to get through for weeks with no success, having someone else handle the hold time becomes worth it.

Do you know if tax software like TurboTax automatically handles Form 8959 correctly? I'm worried about messing this up since I'm already anticipating owing more Medicare tax than what was withheld.

Most tax software does handle Form 8959 correctly as long as you input your W-2 information accurately and select the correct filing status. The key is making sure you've entered your Medicare wages exactly as shown on your W-2 Box 5. TurboTax specifically will calculate the Additional Medicare Tax automatically based on your income and filing status. However, I always recommend reviewing the actual form before filing to make sure everything looks right. Pay special attention to line 7 on Form 8959 which shows the threshold based on your filing status - for MFS it should show $125,000.

There's actually a separate tax called the Net Investment Income Tax (NIIT) that applies to investment income at 3.8% when you're over certain thresholds. It's similar to but different from the Additional Medicare Tax. For Married Filing Separately, the NIIT threshold is also $125,000. So if your MAGI exceeds $125,000, your investment income (interest, dividends, capital gains, etc.) would be subject to this additional 3.8% tax. It's calculated on Form 8960, not Form 8959 which is for the Additional Medicare Tax on wages.

This is such an important point that I wish more people knew about! I'm new to this whole Medicare tax situation since I just started earning over the threshold, and I had no idea about the underpayment penalty risk. Quick question - when you calculate the estimated payments on Form 1040ES, does it automatically account for the Additional Medicare Tax or do you have to add that manually? I'm trying to figure out how much I should be paying quarterly to avoid getting hit with penalties like you did.