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Will You Have Withholding Obligations for the Additional Medicare Tax?


The United States Supreme Court recently upheld the constitutionality of the health care reform act.  One of the tax issues that you may be faced with is the additional Medicare tax that will go into effect in 2013. Taxpayers with wages in excess of $200,000 ($250,000 for married filing joint) will be subject to an additional 0.9% Medicare tax. The tax is in addition to the regular Medicare rate of 1.45% on wages. The IRS recently issued guidance to assist employers in complying with the new law.  Highlights of the guidance are listed below:

  • All wages that are currently subject to Medicare tax are also subject to the additional Medicare tax if they are paid in excess of the applicable threshold
  • The additional Medicare tax applies to employees who are nonresident aliens or U.S. citizens living abroad if their wages exceed the applicable thresholds
  • An employer must begin withholding the additional Medicare tax once an employee’s wages are over the threshold, even if the employee may not ultimately be liable for this tax. Any excess additional Medicare tax withheld will be credited against the total tax liability shown on the employee’s personal income tax return
  • An employer is not required to notify an employee when it begins withholding the additional Medicare tax
  • An employer begins withholding the additional Medicare tax in the pay period in which it pays wages to the employee exceeding the $200,000 threshold and not earlier, even if the employee’s annual wages are expected to exceed the threshold

http://www.irs.gov/businesses/small/article/0,,id=258201,00.html