ATTENTION ALL EMPLOYERS AND HIGH-INCOME EARNERS: ADDITIONAL MEDICARE SURTAX NOW IN EFFECT!
By Suzanne Sylvester, CPA
Employers should check they are withholding the correct amounts and higher-income taxpayers should consider whether it would be appropriate to adjust estimated tax payments and/or withholding allowances to account for the additional 0.9% Medicare tax and the 3.8% unearned income surtax becoming effective in 2013.
The additional 0.9% Medicare tax that is effective for tax years beginning after 2012 applies to individuals receiving wages with respect to employment in excess of $200,000. For married couples filing jointly it's $250,000. For clarity, married couples with two incomes will be subject to the tax if together their income is over $250,000. For example, if one earns $180,000 and the other earns $120,000 neither of the individuals will have the additional tax withheld from their wages because they are not over the individual threshold, but together they make $300,000 in wages for the year. They will be required to pay the 0.9% on $50,000.
The tax is in addition to the 1.45% Medicare tax on wages withheld on employees with respect to employment. The tax only applies to the employee portion. The employer Medicare tax remains at 1.45%, and the employer and employee Social Security tax rates remain at 6.2%. The additional Medicare tax also applies to self-employment income that exceeds the same thresholds. Self-employment income is added to any wages to determine the additional 0.9%
Employers are required to withhold the additional Medicare tax from wages in excess of $200,000 regardless of filing status or other income. The withholding applies at the point when an employee's cumulative wages are in excess of $200,000. There is no requirement to notify the employee. For example, if the employee has earned $175,000 through November 30, 2013 and then is paid a bonus of $50,000, the employer withholds the additional Medicare tax on $25,000.
Also new for 2013, there is a surtax called the Unearned Income Medicare Contribution Tax. It is 3.8% of the lesser of the taxpayer's NET investment income or the excess of modified adjusted gross income over the threshold amounts ($250,000 for joint filers and $200,000 for individuals). Net investment income includes interest income, dividends, annuities, royalties, rents (other than derived from a trade or business), capital gains (other than derived from a trade or business), trade or business income that is passive or income from trading of financial instruments or commodities. The investment income is reduced by allowable investment expenses. Accordingly, all sources of unearned income should be carefully reviewed to see if the surtax is applicable.
These two new taxes in 2013 could result in significant additional overall liabilities for higher income taxpayers, and need to be considered when planning for withholding, estimated payments, etc.
For more information or questions on this topic, please contact your professional at UHY LLP in Farmington Hills
248 355 1040 or Sterling Heights 586 254 1040 or visit us
on the web at www.uhy-us.com.
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