On it’s website, the Internal Revenue Service (the “IRS”) has provided guidance, in the form of Q & As, to employers and payroll service providers on implementing the Additional Medicare Tax that becomes effective in 2013. The guidance is here. The IRS indicates that the Additional Medicare Tax applies to individuals’ wages, other compensation, and self-employment income over certain thresholds, and that employers are responsible for withholding the tax on wages and other compensation in certain circumstances.
According to the Q&As, the Additional Medicare Tax goes into effect for taxable years beginning after 2012. The rate of the tax is 0.9 percent. An individual is liable for Additional Medicare Tax if the individual’s wages, other compensation, or self-employment income (together with that of his or her spouse if filing a joint return) exceed the following threshold amount for the individual’s filing status:
–married filing jointly, $250,000;
–married filing separately, $125,000; and
–single, head of household (with qualifying person), qualifying widow(er) with dependent child, $200,000.
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.
An employer is required to withhold Additional Medicare Tax on wages or compensation it pays to an employee in excess of $200,000 in a calendar year. This obtains even if the employee himself/herself is not liable for the tax because, e.g., the employee’s wages and other compensation do not exceed the applicable threshold. The employer is required to begin withholding the tax in the pay period in which the pay for the year reaches the $200,000 threshold. The withholding requirement applies only to wages in excess of the $200,000 threshold. Any withheld Additional Medicare Tax will be credited against the individual’s total tax liability on his/her Form 1040. There is no employer match for any Additional Medicare Tax that the employer withholds.
The Q& As also discuss the application of the Additional Medicare Tax to noncash compensation, tips, group-term life insurance in excess of $50,000, third-party sick pay and amounts deferred under a nonqualified plan of deferred compensation, and to certain other cases.