Friday, November 23, 2012

Additional HI Tax On High-Income Taxpayers Effective January 1, 2013

The Patient Protection and Affordable Care Act in 2010 will impose an additional
health insurance (HI) tax on the employee’s portion for high-income taxpayers after
2012. The employee portion of the HI (Medicare) tax is increased by an additional
tax of .9% on wages received in excess of $200,000 per individual (or $250,000
for couples filing jointly, $125,000 married filing separately).  The regular percentage
remains at 1.45% for wages under $200,000. The change is to the employee portion
of Medicare only.  Therefore, for taxpayers with wages in excess of the threshold amount, the overall HI rate will be 3.8% (i.e. 2.35% for the employee and 1.45% for the employer).

The employer is required to withhold the additional .9% tax on wages. The employer
could be subject to penalties for failure to deduct and withhold the additional tax. In
determining the employer’s requirement to withhold and liability for the tax,
only wages that the employee receives from the employer in excess of $200,000
for a year are taken into account and the employer must disregard the amount of wages received by the employee’s spouse. To the extent the additional tax is not collected by the employer, the employee shall pay such tax.

For example, if a taxpayer’s spouse has wages in excess of $250,000 and
the taxpayer has wages of $100,000, the employer of the taxpayer is not required to
withhold any portion of the additional tax, even though the combined wages
of the taxpayer and the taxpayer’s spouse are over the $250,000 threshold. In this
instance, the employer of the taxpayer’s spouse is obligated to withhold the additional
.9% HI tax with respect to the $50,000 above the threshold amount.

This same additional HI tax applies to the HI portion of self-employment (SECA)
tax on self-employment income in excess of $200,000 per individual ($250,000
married filing jointly, $125,000 married filing separately). The threshold is reduced
(but not below zero) by the amount of wages taken into account in determining the
FICA tax with respect to the taxpayer. The ½ of SECA tax deduction taken on page 1
of Form 1040 will not apply to the .9%.

The IRS will be releasing revised Form 941 forms for the 1st quarter of 2013
which will include a separate line for the additional HI (Medicare) withholding.

For more information on this change, go to the IRS website at http://www.

Call us at (219) 769-3616 with your questions or e-mail them to