On Nov. 26, 2013, the IRS issued final regulations implementing the Additional Medicare Tax as added by the Affordable Care Act (ACA). Some taxpayers may be liable for an Additional Medicare Tax (AMT) if your income exceeds certain limits. Here are some things that you should know about this tax:
Tax Rate. The Additional Medicare Tax rate is 0.9 percent.
Income Subject to Tax. The AMT applies to the amount of certain income that is more than a threshold amount. The types of income include your Medicare wages, self-employment income and railroad retirement (RRTA) compensation. You must combine your wages and self-employment income to figure the tax. You do not consider a loss from self-employment purposes of this tax. You compare RRTA compensation separately to the threshold.
AMT Threshold Amount. You base your threshold amount on your filing status. If you are married and file a joint return, you must combine your spouse’s wages, compensation, or self-employment income with yours. Use the combined total to determine if your income exceeds your threshold. The threshold amounts are:
- Married fiing jointly = $250,000
- Married filing separately = $125,000
- Single = $200,000
- Head of household = $200,000
- Qualifying widow(er) with dependent child = $200,000
Noncash Wages & Tips. Tips, as well as the value of taxable wages not paid in cash, such as noncash fringe benefits, are subject to Additional Medicare Tax, if, in combination with other wages, they exceed the individual’s applicable threshold.
Withholding / Estimated Tax. Employers must withhold this tax from your wages or compensation when they pay you more than $200,000 in a calendar year. If you are self-employed you should include this tax when you figure your estimated tax liability. If you think you may owe the Additional Medicare Tax due to filing status or additional income, you can also request that your employer withhold more tax by editing your W-4.
Underpayment of Estimated Tax. If you had too little tax withheld, or did not pay enough estimated tax, you may owe an estimated tax penalty.
The Additional Medicare Tax is just one reason why it’s useful to use a CPA or qualified tax preparer to submit your taxes to the IRS. Contact us today to schedule a consultation!
