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.

Tax Pro Plus: Tax Tips - Getting Ready to Retire?

Certain tax issues may affect your Social Security benefits

Many individuals start thinking about retirement at age 63 and wonder how social security will work once they are no longer working. Some people have to pay federal income taxes on their social security benefits. This usually happens only if they have other substantial income such as wages, self-employment, interest, dividends and other taxable income that must be reported on their tax return in addition to their benefits. Based on IRS rules, no one pays federal income tax on more than 85 percent of their social security benefits.

Each January retirees will receive a Form SSA-1099, Social Security Benefit Statement, showing the amount of benefits they received in the previous year. If they do have to pay taxes on their social security benefits, they can make quarterly estimated tax payments to the IRS or choose to have federal taxes withheld from their benefits. Your tax professional can help you determine how retirement will impact your tax situation.

If you have any questions, please call Tax Pro Plus LA today: 310-827-4829.

Tax Pro Plus: Tax Tips - Adjusting Your Payroll Withholding

Is this a good strategy for you?

Reevaluating your payroll withholding at the end of each year is a good practice that you should consider adopting. If you typically owe a large amount or have a large refund when filing your taxes, adjusting your withholdings is especially important. While you may like the idea of receiving a large  tax refund, in reality you’re giving the government an interest-free loan.

Work with your tax advisor and spouse to determine how much income you expect to have for the year and consequently how much tax you may owe. Your tax professional can help you fill out a new Form W-4, Employee’s Withholding Allowance Certificate, in which you will claim the number of allowances that correspond with the proper amount of withholding. Afterwards, you’ll need to give the W-4 to your payroll department. The Form W-4 can be filed at anytime that makes sense for you and your family.