Mandated by the Patient Protection & Affordable Care Act (PPACA)
As of January 1, 2013 an important change to Medicare and Medicaid, mandated by the Patient Protection and Affordable Care Act (PPACA), is a Medicare Tax Increase. For any specific legal or financial advice, it is recommended that you consult with a licensed professional in your state.
Medicare Tax Increase
Employers must now withhold an additional 0.9 percent Medicare tax from employee paychecks with incomes over certain thresholds. The tax will apply to both wages and compensation above the threshold.
Filing Status Threshold Amounts
- Married Filing Jointly: $250,000
- Married Filing Separately: $125,000
- Single: $200,000
- Head of Household (with qualifying person): $200,000
- Qualifying widow(er) with dependent child: $200,000
Wages Subject to the Tax
Any wages that are currently subject to the Medicare tax will be affected by the tax increase.
The Employer Must Withhold the Additional Tax from Employee’s Wages
An employer must withhold the additional tax from wages paid to an individual in excess of the $200,000 amount regardless of the individual’s filing status or wages paid by another employer.
The Employee Surpasses the Threshold Limit via Multiple Sources of Income
If an employee anticipates that their total income will surpass the threshold, but not through a single employer, the employee may request that the employer withholds an additional amount of income withholding on IRS Form W-4. The additional income tax withholding will then be applied against the employee’s taxes as shown on their tax return, including any additional Medicare tax liability. The employee also may make estimated tax payments if the employee believes that he or she will exceed the threshold via multiple sources of income.
Can an Employer Ever Stop Withholding Additional Tax?
If an employee or individual makes over $200,000 annually, files jointly with his or her spouse, and the couple makes less than $250,000, can the employee ask the employer to stop withholding the additional tax? NO. The employer must withhold the additional tax amount. However, the couple may claim credit for any additional Medicare tax liability against the total tax liability on your individual income tax return.
Are Employers Required to Match the Amount of the Additional Medicare Tax?
No. Employers are not required to match the additional tax amount.
For more information on the increased Medicare tax, please see the following IRS Question and Answer page.
Reeva Simon Rivkin, RHU, HIP, President, Rivkin Insurance Services; CA LicOB12353
Rivkin Insurance Services is a full service insurance agency specializing in Employee Benefits, Medicare Supplements, Medicare Advantage, Medicare Part D, Long Term Care Insurance, and Individual Health Care Insurance. We are here to help!
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* The views expressed do not necessarily reflect the official policy, position, or opinions of Rivkin Insurance Services. This update is provided for informational purposes. Consult with a licensed accountant or attorney regarding any legal / tax matters discussed herein.