Additional Medicare Tax After 2012

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For tax years beginning after December 31, 2012, not only will individuals have to pay an additional 2.0% FICA tax due to the expiring payroll tax holiday, but possibly an additional 0.9% Health Insurance (or Medicare) tax which may be imposed on taxpayers.  The additional 0.9% Medicare tax was added to help pay for the 2010 Health Care Act.

Individuals will incur the additional 0.9% tax if their wages or self-employment income is in excess of:

  • $250,000 for joint returns
  • $125,000 for married taxpayers filing a separate, or
  • $200,000 in all other cases

For married individuals filing a joint return, the determination of the $250,000 threshold is not on an individual basis but on a joint basis. For example, if husband and wife each earn $200,000, they will incur the additional 0.9% tax on the excess of their combined wages over the $250,000, thus generating an additional tax of $1,350.

This tax will be in addition to the regular Medicare tax rate of 1.45% of employment wages received by employees, however, employers do NOT have to match this additional 0.9% as part of their employer FICA match.

It is important to note that the employer is required to withhold the additional 0.9% Medicare tax on wages (only on wages in excess of $200,000 that the employee receives from the employer) and will be liable for the tax that it fails to withhold from wages or to collect from the employee where the employer fails to withhold. Employers will remit and report these additional taxes in the same manner as their current payroll reporting.