Gurian CPA Firm | Missed the Tax Deadline Know the Late Penalties

On Nov. 26, 2013, the IRS issued final regulations implementing the Additional Medicare Tax (AMT) as added by the Affordable Care Act (ACA). Some taxpayers may be required to pay an Additional Medicare Tax if their 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 tax 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, railroad retirement (RRTA) compensation, and tips. The value of taxable wages not paid in cash, such as noncash fringe benefits, are also subject to Additional Medicare Tax
• 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:

• 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.
• 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. For more on this, see Publication 505, Tax Withholding and Estimated Tax or check out our video on YouTube.

Common Questions:

If my employer withholds Additional Medicare Tax from my wages in excess of $200,000, but I won’t owe the tax because my spouse and I file a joint return and we won’t meet the $250,000 threshold for joint filers, can I ask my employer to stop withholding Additional Medicare Tax?

No. Your employer must withhold Additional Medicare Tax on wages it pays to you in excess of $200,000 in a calendar year. Your employer cannot honor a request to cease withholding Additional Medicare Tax if it is required to withhold it. You will claim credit for any withheld Additional Medicare Tax against the total tax liability shown on your individual income tax return (Form 1040) to receive a refund.

What should I do if I have two jobs and neither employer withholds Additional Medicare Tax, but the sum of my wages exceeds the threshold at which I will owe the tax?

If you anticipate that you will owe Additional Medicare Tax but will not satisfy the liability through Additional Medicare Tax withholding (for example, because you will not be paid wages in excess of $200,000 in a calendar year by an employer), you should make estimated tax payments and/or request additional income tax withholding using Form W-4.

To sum up, beginning in 2013, individuals must pay an additional 0.9% Medicare tax on earned income above certain thresholds. Contact your Dallas CPA to learn more or if you have questions if this tax will affect you.