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June 27, 2012

HRB 52 - Implementation Guidance on Medicare Tax and Upcoming Supreme Court Ruling on Health Care Reform

Released June 27, 2012I Download as a PDF

June 27, 2012 -- 

Implementation Guidance on Medicare Tax assessed on High Earners

One of the ways expanded access required by the Affordable Care Act (ACA) will be funded is through an increase in Medicare tax for high wage earners.  The Medicare tax increase, which takes effect January 1, 2013, imposes a 0.9% increase in the individual’s Medicare tax rate, applicable on earnings in excess of $200,000 in a calendar year.  This additional Medicare tax increase does not apply to the employer’s share of the Medicare tax. 

The IRS recently issued a set of Q&As that are intended to provide guidance on the implications of this tax.  Following are highlights of this guidance.

Below is a chart of individuals liable for the additional tax, based on their filing status:

Filing Status

Income Threshold Amount

Single

$200,000

Married filing jointly

$250,000

Married filing separately

$125,000

Head of household (with qualifying person)

$200,000

Qualifying widow(er) with dependent child

$200,000

The employer must begin withholding the additional Medicare tax only when the individual has reached the $200,000 threshold.  The employer withholds the additional tax even if, ultimately, the individual is not liable for the tax.  For example, if an employee earns $210,000 and the spouse earns $25,000, the employer would be obligated to withhold the employee’s share of the Medicare tax on the $10,000 in excess of the $200,000.  However, the individual would not owe it because the couple’s earnings do not exceed the $250,000 (married filing jointly) threshold.

The additional Medicare tax monies will be credited against the individual’s total tax liability as reflected on his/her Form 1040.

The employer is not required to notify employees that it will begin withholding the tax.  Again, monies are only withheld after the individual has reached the threshold level of earnings and it is only assessed on earnings in excess of these thresholds. 

The guidance clarifies that there is no exemption for nonresident aliens or U.S. citizens living abroad.  Therefore, earnings on which the Medicare tax is assessed for these individuals are likewise subject to this additional tax.

Employers should begin working with their payroll departments and providers to make certain that the requisite triggers are put in place to ensure proper withholding is accomplished.

Upcoming Supreme Court Ruling on Health Care Reform

The much anticipated Supreme Court ruling on the health care reform law may come on Thursday, June 28, 2012.  There is also a small possibility that it will not come on that date. 

Be assured that we at CBIZ are ready to help you navigate the next phases in this evolution.  While we certainly do not know how the Supreme Court will rule, we do know that we humans will continue to need health services, that health services will continue to be delivered, and that employers will want to participate in this process in a way that is both beneficial to their workforce and cost effective.

 

 

About the Author:  Karen R. McLeese is Vice President of Employee Benefit Regulatory Affairs for CBIZ Benefits & Insurance Services, Inc., a division of CBIZ, Inc.  She serves as in-house counsel, with particular emphasis on monitoring and interpreting state and federal employee benefits law.  Ms. McLeese is based in the CBIZ Leawood, Kansas office.

 

The information contained herein is not intended to be legal, accounting, or other professional advice, nor are these comments directed to specific situations. The information contained herein is provided as general guidance and may be affected by changes in law or regulation.

The information contained herein is not intended to replace or substitute for accounting or other professional advice. Attorneys or tax advisors must be consulted for assistance in specific situations. This information is provided as-is, with no warranties of any kind. CBIZ shall not be liable for any damages whatsoever in connection with its use and assumes no obligation to inform the reader of any changes in laws or other factors that could affect the information contained herein.

As required by U.S. Treasury rules, we inform you that, unless expressly stated otherwise, any U.S. federal tax advice contained herein is not intended or written to be used, and cannot be used, by any person for the purpose of avoiding any penalties that may be imposed by the Internal Revenue Service.

 

 

 

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