• Additional Medicare Tax Withholding Required in 2013
  • January 7, 2013 | Author: Steven R. Gerlach
  • Law Firm: Bernstein Shur - Portland Office
  • The IRS recently issued guidance for employers on withholding the Additional Medicare Tax required under the Affordable Care Act starting in 2013.

    • The AddMed Tax applies to employee compensation and self-employment income earned on or after January 1, 2013.

    • The AddMed Tax is levied against the same income as regular Medicare tax, which, among other things, includes taxable fringe benefits and tips.

    • The tax rate is 0.9%.

    • There is no “employer match” like there is with regular Medicare tax.

    • Employers are required to withhold the AddMed Tax on compensation in excess of $200,000 per year, without regard to the employee’s actual household income.

    • Employers are required to begin withholding in the pay period in which the employee exceeds $200,000 annual compensation.

    • Employers are liable for the tax whether or not it is withheld. Amounts owed by the employer will be offset by amounts paid by the employee.

    • Employers are not required to provide notice to employees when AddMed Tax withholdings are about to begin.

    • Employees may request additional withholding on form W-4, but may not earmark the withholding for the AddMed Tax. The additional withholdings, however, will nonetheless be applied to the AddMed Tax on the employee’s 1040.

    • Employees may also make estimated tax payments to cover the AddMed Tax.

    • The IRS will modify Form 941 to accommodate reporting and payment of AddMed Tax withholdings.

    • W-2 Forms will not change for the AddMed Tax.

    COMING SOON: On December 28, 2012 the IRS issued new regulations regarding the pay or play system. Look for an upcoming alert outlining the regulations and what employers need to know.