Employers and employees are reminded that as part of 2010's health care reform legislation, an additional 0.9% Medicare surtax became effective on January 1, 2013. Beginning in 2013, in addition to withholding Medicare tax at 1.45%, employers must withhold an additional 0.9% Medicare tax from wages paid to an employee in excess of $200,000 in a calendar year, and they must continue to withhold it until the end of the calendar year. The additional 0.9% tax only applies to an employee's earnings in excess of $200,000 from that particular employer. In determining whether wages exceed $200,000, the employer does not take into account the employee's filing status or other wages or compensation from other employers that may affect the employee's liability for the tax. There is no employer match required for the additional 0.9% Medicare tax, and no requirement that an employer notify employees when it begins withholding the additional Medicare tax. Employers are required to begin withholding the additional tax in the pay period in which it pays wages in excess of $200,000 to an employee.
The additional 0.9% Medicare tax will apply to wages over $200,000 for single filers, wages over $250,000 for joint filers, and wages over $125,000 for married filing separate filers. The additional tax will be calculated on Form 1040 for individual income tax filers. However, the new withholding requirement for employers is determined on a per employee basis, and any employee with wages in excess of $200,000 will be subject to the additional 0.9% withholding on amounts exceeding $200,000. An employee may not request that the employer deduct and withhold the additional Medicare tax on wages of $200,000 or less. However, an employee who anticipates that he or she will be liable for additional Medicare tax (for example, if household wages for the employee will exceed the married filing joint threshold of $250,000) may request that the employer deduct and withhold an additional amount of income tax through completing Form W-4 (Employee's Withholding Allowance Certificate).
The 2013 version of Form 941 (Employer's Quarterly Federal Tax Return) now reflects the expiration of the 2% payroll tax cut that was available in 2011 and 2012, as well as the start of the new additional 0.9% Medicare Tax imposed on high wage earners (wages above $200,000 for any employee).
As always, please feel free to contact your tax advisor atThe Marston Group, PLC if you have any questions regarding these rules.