Additional Medicare Tax

In a previous post, I discussed the 3.8% Medicare surtax which takes effect in 2013.  There is another  Medicare tax effective for tax years beginning after December 31, 2012, the 0.9% Medicare surtax.  The health care reform legislation passed in 2010 created both of these surtaxes.  The 0.9% surtax imposes an additional tax on FICA wages, Railroad Retirement Tax Act compensation, and self-employment income that exceeds $200,000 for single taxpayers and $250,000 for married taxpayers filing jointly.  The surtax applies only to the employee’s share of Medicare tax.

Withholding

Employers will withhold the surtax from an employee’s wages once they exceed  $200,000 in a calendar year.  The employer does not take into account the employee’s filing status or other wages that may affect the employee’s liability for the tax.   Married couples who each make below the $200,000 threshold but expect their total wages to exceed $250,000 in 2013 should consider having more income tax withheld on their salaries.

Reporting

Taxpayers will report the additional Medicare tax on Form 1040.  For individuals who receive both a salary and self-employment income, the threshold amount on the self-employed earnings is reduced by the amount of any FICA wages that are used in determining the individual’s additional Medicare tax liability.

As of today, these rules have only been issued in the form of proposed regulations.  The IRS expects to make these regulations permanent in 2013; until that happens, taxpayers may rely on the proposed regulations.

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