Introducing Two New Tax Forms for High Income Individuals


Photo by 401(K) 2012 at


Back in July of 2012, I wrote about the new Medicare taxes that higher income earners will be subject to under the Affordable Care Act starting in 2013.


Briefly, there is an additional Medicare tax of .9% on wages and self employment income over $200,000. ($250,000 for married filing jointly couples/$125,000 for married filing separately)  For more details and a complete breakdown of the taxes you can read the post at:


And there’s also the new Medicare tax of 3.8% on your investment income. The 3.8% tax is going to apply to the lesser of your net investment income or the amount of your AGI in excess of a certain threshold amount.   The thresholds are $200k-singles and Head of Household, $250K-MFJ, and $125K-MFS.  For more information you can check this post out.


Now that 2013 is more than halfway through and the income tax filing season will be here before you know it, how are you supposed to report those taxes on your 1040 tax return?  Well, the IRS has introduced not one but two new tax forms for you to fill out.


I don’t know why, but introducing new tax forms makes me feel a little like a late night talk show host, so forgive me for saying, let’s bring out our first guest, Form 8959—dft.pdf Okay, it’s no Johnny Depp.  It’s not even as interesting as the Aflac Duck.  But it is new.  If you click on the link, you’ll have to scroll past all the warning it’s only a draft signs.  (If you’re reading this in 2014, you should be able to find actual forms instead of drafts.)  The Form 8959 is what you’ll be filling out if you have to pay the .9% Medicare tax on wages or self-employment income.


If you have investment income, the new form is called the Form 8960 and here’s a link to that:—dft.pdf That’s going to be the form you file for the 3.8% Medicare tax on investment income.


Now the upside to both of these forms (if there’s an upside to paying more taxes) is that if you’re using computer software (like the software you can access from this website) — the software will compute everything for you.  I have 100% confidence that Turbo Tax, H&R Block at home, and all the others will get the 8959 right.  The 8959 form is for the .9% tax on wages.  The form is very straight forward (as far as tax forms go, at least to a tax geek like me.)  You basically take numbers from your W2 or self employment tax form and do a little multiplication.  Bam—you’re done.


But I am a little concerned about potential errors in the 8960 forms.  There are 21 official lines to the form and there are 16 places where the form says “see instructions.”  That’s telling me there’s a lot of room for error there.   You’re still going to be better off using a tax software if you have to file the form 8960, but I’d be cautious.  Don’t rush to be the first one to file your return.  During tax season, software programs are updated daily.  This form is likely to have bugs, so let the IT folks work those bugs out before you submit.


As a tax professional, I’ll be going over those forms with a fine tooth comb until I’m confident the numbers are all flowing correctly.


The taxes that you compute on forms 8959 and 8960 will be reported on line 60 of your 1040 tax return:—dft.pdf Line 60 used to just say “other taxes” but now it will specifically 8959 and 8960 with little checkboxes.


So technically, Congress can say that your 1040 form won’t be longer.  You’ll just have extra pages to attach to it.

What is a W-9 and Do I Need One?

w9 forms

I’ve you own your own business and provide service to another company, they may ask you to fill out a W9 form.


If you own a business and you pay for services to an individual, and you expect to pay over $600 for those services, then you should have that person complete a W9 form for your files.  You’ll need the information in order to prepare the 1099MISC forms next January.  Also, you only need a W9 if someone is working for your business.  For example:  when I have Brad the Painter come to my house to replace my damaged siding—I don’t give him a W9, it’s a personal service to me.  Now if I hired Brad to paint my office, then I’d have to collect the W9 because it would be a business expense.


The general rule here is if you’re writing the service off as a business expense, then you’ll need to collect a W9 from the vendor.



Who should I give a W-9 to? This is an important question because I received numerous complaints from people who were asked to complete a W9 form.  Basically, if you’ve done work for a business and they’ve paid you over $600 you should just hand them a completed W9.  That was the instruction I was given by the IRS for my own company.  You might think you’re not self-employed, or that you don’t have a business—but if you are doing work, getting paid, and not on the payroll; that means you’re self-employed.


When you look at the W9, the check boxes indicate if you’re an S Corp, C Corp, or sole proprietor.  The instructions also recommend that sole proprietors use their social security numbers instead of EIN numbers.  This is where I’m going to disagree with the IRS, in light of the huge number of identity theft cases this past year, do not use your social security number on your W9 form.  Anybody can get an EIN number for their business.  You can do it for free and it takes about 5 minutes at the IRS web-site:


When completing the EIN application, a sole proprietor is anyone who is filing a schedule C (self employed), E (rental real estate) or F (farm) for their business.  It’s important to know that the minute the IRS issues the EIN number, it’s good.  If you have to submit a W9 but don’t have an EIN, you can go online, get the EIN, and use it on your W9.  The business issuing you a 1099 must accept your EIN even if you did the work a year ago.




Is there any way to avoid having to complete a W-9 form or issue a 1099MISC? The easy way to avoid having to issue a 1099 MISC (and collecting a W9 form) is to pay by credit card.  Credit card companies are now issuing 1099K forms so that revenue to the vendor is already being reported to the IRS by another reporting agency.  If you don’t want to be collecting W9 forms and issuing 1099s, then use your credit card.  This is the easiest way to avoid 1099MISC and W9s, but remember that there are lots of fees associated with using credit cards.  As my Mom used to say, “Pick your poison.”


What about home office expenses? Do I need to collect a W9 from my landlord?  I think this is a case of the overzealous W9 collector.  If you have a home office, you’re reporting that on your Form 8829.  Whether you are reporting mortgage interest or apartment rent, it is considered to be a personal expense that you are attributing a percentage of to your business expenses.  You do not need to collect W9s from your mortgage company, landlord, or utility companies to claim your home office deduction.  (I’ve been asked this question enough times that I felt it necessary to include it here.)




What about purchasing an item from an individual?  Do I need a W-9 then? The example that was given to me was buying a claw foot bathtub from Aunt Bertha.  I tend to think of this kind of like going to a garage sale—you wouldn’t dream of giving a 1099 to the person running the garage sale would you?  Now if Aunt Bertha were in the business of refurbishing bathrooms; that might be another story.  But if you just buy something, a private transaction between two people, that’s not a W9 issue.




What about small jobs that are repeated monthly so the total will be over $600.  Do I need to get a W-9 for those? Once again, if you’re talking about business expenses then you should collect a W9 and issue a 1099MISC for the work.  For example:  I used to pay $50 a week to a guy to edit my blog posts and monitor my website.  (Now Mike does that.)  Although the payment was only $50, over the course of a few months, it exceeded the $600 threshold so I had to issue a 1099.


Generally, if you’re unsure about needing a W9, it’s safer to err on the side of collecting one and issuing a 1099MISC than it is to not have it.