Employers advised on over-withheld medicare tax

The following explains the adjustment and claim procedures for when an employer overcollects additional medicare tax.

Additional medicare tax over collected – discovered before Form 941 is filed

If an employer withholds too much from its employees’ wages for additional medicare tax, and discovers the error before filing Form 941 for the quarter during which the error was made, it does not have to report the over withheld amount if it repays or reimburses that amount by the due date of the Form 941 and keeps in its records a receipt from the employee showing the date and amount of payment or a record of reimbursement.

Additional medicare tax over collected – discovered after Form 941 is filed

If an employer over withholds additional medicare tax from its employees’ wages and discovers the error after filing Form 941 for the quarter during which the error was made, but before the end of the calendar year, the employer also can either repay or reimburse the employee for the over withheld amount. However, the employer must repay the over withheld amount before the end of the calendar year during which the error was made, as well as keep the employee’s written receipt as to the date and amount repaid. Employers that reimburse employees for over withheld amounts by reducing future withheld taxes can do so only during the same calendar year that the error occurred, and they must keep evidence of the reimbursement as part of their records. Any over collections that exceed the amount reimbursed must be repaid to the employee.

Requirements for interest-free adjustments of additional medicare tax overpayments

An interest-free adjustment for overpayments of additional medicare tax can be made only if the employer discovers the error and repays or reimburses its employees within the same calendar year that the wages were paid. Once an employer repays or reimburses an employee, the employer may report both the employee and employer portions of additional medicare tax as an overpayment on the Form 941-X. The employer must certify on the form that it has repaid or reimbursed its employees.

Refunds of overpayments of additional medicare tax

An employer can only file a claim for refund for additional medicare tax that was overpaid to the IRS but not withheld from the employee. An employee can claim a credit for any withheld additional medicare tax against the total tax liability shown on the employee’s income tax return by filing Form 8959, Additional Medicare Tax, with Form 1040. If an error is discovered after Form 1040 was filed, the employee must file Form 1040X, Amended U.S. Individual Income Tax Return. See the Instructions for Form 1040X. (SSA/IRS Reporter Spring 2014.)

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