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Medicare Payroll Tax On Earned Income
Under the new Medicare payroll tax provision, earners will owe an additional 0.9% on wages and compensation including self-employment income above $250,000 (married filing jointly) $200,000 (individuals). An employer will be required to withhold the extra 0.9% from compensation it pays to an individual in excess of $200,000 in a calendar year, without regard to the individual's filing status or compensation paid by another employer. If you are self-employed, you may need to adjust your estimated tax payments for the anticipated increase in tax. 
For example, If you are an individual whose wages, compensation or self-employment income will be $225,000 in 2013, you will pay a 1.45% Medicare tax on the first $200,000, then 2.35% (1.45% plus 0.9%) on the next $25,000. 
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Net Investment Income Tax
 The Net Investment Income Tax (NIIT) is a 3.8% tax on certain net investment income of individuals, estates, and trusts with income above threshold amounts. Individuals whose modified adjusted gross income (MAGI) exceeds $250,000 (married filing jointly) or $200,000 (single filers) are taxed at a flat rate of 3.8% on their investment income.
What Is Included in Net Investment Income?
In general, investment income includes, but is not limited to: interest, dividends, long and short-term capital gains, rental and royalty income, non-qualified annuities, income from businesses involved in trading of financial instruments or commodities, and passive business activities such as rental income or income derived from royalties.
What is Not Included in Net Investment Income?
Wages, unemployment compensation, operating income from a nonpassive business, Social Security Benefits, alimony, tax-exempt interest, self-employment income, Alaska Permanent Fund Dividends, and distributions from certain Qualified Plans are not included in net investment income.
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Linda Smith and Maureen Sullivan
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Questions?
At Smith, Sullivan & Company, PC, our dedicated professionals listen to your auditing and accounting, tax preparation, and small business questions. We provide personalized solutions to you, your family, business or nonprofit, all at a reasonable price.
Our accounting team has extensive experience. We understand your frustration when you tell us that you've paid top dollar for accounting services - only to learn that there's a junior-level person working on your engagement. Or, that it's mid-March and your accountant isn't returning emails or phone calls because your files have been put on the back burner so that they can focus on the tax return crunch. At Smith, Sullivan & Company, PC we only send senior-level accountants into the field and they remain accessible to you throughout the year. A dedicated team is assigned year-round specifically to our nonprofit clients, so that deadlines are met on time and your questions are never ignored.
Established in 1993, Smith, Sullivan & Company, PC is for you if you value communication, one-on-one attention, and "hands-on" expertise from experienced senior-level accountants. Whether you have a project to bid on now, or in the near future, contact us to schedule an introductory meeting, we'd love to meet you!
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