Additional Medicare Deduction

Under federal tax laws, if an employee earns more than $200,000 of taxable Medicare wages in one year, the income exceeding that amount is subject to an additional Medicare deduction. For income higher than $200,000 the employee will be charged an additional.9% over the usual Medicare percentage deduction.

In order to take this additional percentage, your organization must create a specific deduction code and associate that with the employee. This section outlines creating the deduction as well as associating the deduction with employees who are eligible. For more information, refer to Deduction Table.

Setting up the Additional Medicare deduction code

To determine the Medicare deduction for employees, your organization must create a new deduction code of *AM as a crossover deduction that takes 0% through $200,000 and takes.9% at over $200,000 of wages subject to Medicare. There is no employer share for this deduction.

1. Select Human Resources > Reference Tables > Payroll > Deductions.
2. In the Deduction Table page, click Add New.

3. In the General Tab:

   Deduction Code	*AM
   Title for Deduction Code	ADDITIONAL MEDICARE
   Check Title	ADD MED
   Frequency	Frequency code your organization has set up to run every pay period and to always be active.
   Maintain Arrears	Do not select.
   Method	C-Crossover
   Subjective Gross	MD - Medicare Tax Gross
   Include in EAC "What If" Paycheck Calculate	Do not select.

   Caution
   If All is selected in the Exempt Deductions section of the Pay Code record assigned to the employee, the deduction will not be taken during pay run processing. 

4. On the Employee tab, enter the following information for the *AM code:

   Withholding Account	Enter the site-specific account.
   Deduction Amount/Rate	0.00
   Maximum Gross	200,000.00
   Crossover Middle Rate	0.00900
   Crossover Middle Maximum	999,999.99
   Crossover High Rate	0.00900
   Maximum Deduction	0.00
   Maximum Method	Y - Year to Date
   Cafeteria Plan	N - Deduction is not part of the cafeteria plan
   Deduction for a Bond	Do not select.

5. In the Employer tab, enter the following since there is no employer share for this deduction:

   Benefit Method	N - None
   Benefit Amount/Rate	0.000000
   Benefit Charging	A - All Pay Rates
   Maximum Benefit	0.00
   Encumber Benefits	Do not select.
   Number of Times Encumbered and Remaining	Set both to 0.

   Leave the *Budget Unit*, *Project*, and Benefit Account fields blank.

6. On the Taxation tab, leave all the checkboxes blank.
7. On the Vendor tab, the fields may be left blank. However, if your organization creates automated vendor payments for Medicare, you will need to set up the vendor information on this tab.

Adding an additional Medicare deduction to an employee

Once you have added the additional Medicare deduction to the Deduction Table, you must set up the deduction for the employees that are subject to the deduction.

1. Select Human Resources > Entry & Processing > Employee > Employee Information > search for and select an employee > click OK to display the Employee Information detail page.
   You can also add the deduction to an employee through Human Resources > Periodic Routines > Periodic Processing > Effective Date Changes > click Deductions. The advantage of this option is that you can schedule the change for posting on a future date. For information, refer to Periodic Processing - Effective Date Changes.
2. Click Payroll Information on the Action Bar, and then select Deductions.
3. In the Employee Deductions page, click Add New.
4. In the Deduction field, enter *AM. The required information will auto-fill and should not be changed.
5. Click OK to save the deduction.

Adding gross earnings to the additional Medicare deduction record

If the Medicare deduction record is added after the employee has accrued Medicare Gross earnings for the year, the earnings information needs to be entered on the Accruals tab of the deduction.

1. Select Human Resources > Entry & Processing > Employee > Employee Information > search for and select an employee > click OK to display the Employee Information detail page.
2. In the Earnings tab, copy the data in the Medicare Gross fields.
3. Click Payroll Information on the Action Bar, and then select Deductions to display the Employee Deductions page.
4. In the List section, select the additional Medicare deduction record, and then click OK.
5. In the Accruals tab, enter the Medicare earnings.
6. Click OK to save the earnings.