Beginning January 1, 2013, ACA requires employers to withhold additional Medicare tax on wages paid to employees in excess of $200,000. Final regulations published December 5, 2012 confirm the process by which the additional tax should be calculated and withheld. The additional Medicare tax is 0.9% of wages over $200,000 and applies only to the employee’s share of FICA taxes. There is no matching employer share. Employers must withhold the additional Medicare tax beginning with the pay period in which an employee’s wages first exceed $200,000. Certain employees may qualify for a refund of some or all of the additional Medicare tax because a higher $250,000 threshold applies to married couples filing a joint return. Employers are not required to notify employees of the additional Medicare tax.
ACA also imposes a new 3.8% Medicare tax beginning in 2013 on unearned income (e.g., dividends, interest, capital gains) for the same group of higher-income taxpayers (those with incomes over $200,000 (single) or $250,000 (joint filers)). Employers are not responsible for collecting the new 3.8% Medicare tax and are not required to notify employees of that tax.
American Fidelity Assurance Company does not provide tax or legal advice.