Medicare Payroll Tax Goes Up by .9% for High Income Earners

As part of the health care reform legislation passed under the Affordable Care Act, the employee portion of the FICA Medicare payroll tax rate for high income earners will increase by .9% beginning in 2013. The employer portion of the Medicare tax will remain unchanged at 1.45%.

The FICA tax is made up of the Social Security tax and the Medicare tax. The Social Security portion of the FICA payroll tax is currently 6.2% for employers and 4.2% for employees (calculated on the first $110,100 in wages in 2012). The employee portion of the tax rate will increase to 6.2% in 2013 unless congress votes to extend the current payroll tax cut. The social security wage base will increase to $113,700 in 2013. The Medicare portion of the FICA payroll tax for 2012 is 1.45% for both employees and employers.

The Additional Medicare Payroll Tax applies to wages, other compensation, and self employment tax over certain thresholds. Employers will be responsible for withholding the tax on employee compensation in certain circumstances. The IRS has released a Q&A addressing the most frequent employer questions. Below are a few of the answers that may be of interest to employers. For a complete summary of the question and answers, please visit www.irs.gov.

1. When does the Additional Medicare Tax begin?

The Additional Medicare Tax goes into effect for taxable years beginning after December 31, 2012.

2. What is the Additional Medicare Tax Rate?

The rate is 0.9%

3. What wages are subject to the Additional Medicare Tax?

All wages that are currently subject to the Medicare tax are subject to the Additional Medicare Tax if they are paid in excess of certain thresholds.

4. When are individuals liable for Additional Medicare Tax?

An individual is liable for Additional Medicare Tax if the individual’s compensation (together with that of his/her spouse if filing a joint return) exceed the threshold for the following filing status:

• Married Filing Jointly Status: $250,000

• Married Filing Separately: $125,000

• Single: $200,000

• Head of Household $200,000

• Qualifying Widower $200,000

5. When must an employer withhold the Additional Medicare Tax?

Employers are required to withhold the Additional Medicare Tax on wages and compensation in excess of $200,000.

6. Is there an employer match for the Additional Medicare Tax?

There is no match for the Additional Medicare Tax.

7. Is the employer required to notify the employee once it begins withholding the Additional Medicare Tax?

No.

If you have questions about the Additional Medicare Tax, consult with your CPA, Payroll Service or visit www.irs.gov.