What Does the Medicate Surtax Mean for Employers?

Christopher Axene | September 14th, 2012

Even though the Supreme Court’s decision was a few months ago at this point, health care reform is still getting a lot of coverage in the media.  Individuals and business owners are still trying to get their hands around what it will mean for them and what they’ll have to do to comply with the new law.

Most discussions about how health care reform will impact taxes have centered on the so called “Individual Mandate.”  But, health care reform will lead to other tax changes, too.  One such tax chance is the addition of a 0.9% Medicare tax surcharge.

Medicare Tax Surcharge

Beginning in 2013 there is an additional 0.9% Medicare surtax on individuals receiving wage income in excess of $200,000 ($250,000 for married couples filing a joint return/$125,000 for married couples filing separately).  This tax is in addition to the 1.45% Medicare tax already levied on wage earners – or potentially 2.35% in total.

This additional surtax applies only to the employee portion of the Medicare tax.  The employer portion remains unchanged at 1.45%.  Employers must begin withholding the additional surtax once the employee’s wage income exceeds $200,000 during the year – regardless of whether or not the surtax actually applies to them (i.e. because they file jointly).  Form 941 for 2013 will be modified so the employer can separately identify the additional surtax amounts withheld during the reporting period.

While employees may not request additional withholding specifically for the additional Medicare tax, employees who anticipate being liable for the tax may submit a revised Form W-4 to their employer requesting additional income taxes be withheld.  The taxes would then be credited against the total tax liability (including the additional Medicare surtax) for the year on the each employee’s individual income tax return.

Start Your 2013 Tax Planning Now

It is clear that regardless of what happens this November, 2013 will bring changes in both information reporting and, in some cases, increased Medicare taxes to your employees.  As an employer now is the time to address these issues and determine what actions are necessary to inform and educate your employees.   As always, please contact Rea & Associates if you have questions or would like assistance complying with these new requirements.  Our Ohio tax accountants can help you understand what healthcare reform means for you, your business and your employees – and what changes you need to make to comply with the new law.

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