Tax Pro Plus: Business Tax Tips - Additional Medicare Tax Goes Into Effect in 2013

Some wealthier taxpayers will pay more

The Additional Medicare Tax goes into effect for taxable years beginning after December 31, 2012. An additional tax of 0.9 percent applies to individuals’ wages, other compensation and self-employment income over certain thresholds (see below table).

All wages that are currently subject to Medicare tax are subject to Additional Medicare Tax if they are paid in excess of the applicable threshold for an individual’s filing status. There are no special rules for nonresident aliens and U.S. citizens living abroad for purposes of this provision.

Employers are responsible for withholding the tax on wages and other compensation in certain circumstances. The statute requires an employer to withhold Additional Medicare Tax on wages or compensation it pays to an employee in excess of $200,000 in a calendar year. An employer has this withholding obligation even though an employee may not be liable for the Additional Medicare Tax because, for example, the employee’s wages or other compensation together with that of his or her spouse (when filing a joint return) does not exceed the $250,000 liability threshold. There is no requirement that an employer notify its employee when the business begins withholding Additional Medicare Tax. The employer is required to withhold Additional Medicare Tax on total wages, including noncash fringe benefits, in excess of $200,000. There is no employer match for Additional Medicare Tax.