Beginning January 1, 2013, Health Care Reform requires employers to withhold additional Medicare tax on wages paid to employees in excess of $200,000. Final regulations published December 5, 2012 confirm the process by which the additional tax should be calculated and withheld. The additional Medicare tax is 0.9% of wages over $200,000 and applies only to the employee’s share of FICA taxes – there is no matching employer share. Employers must withhold the additional Medicare tax beginning with the pay period in which an employee’s wages first exceed $200,000. Certain employees may qualify for a refund of some or all of the additional Medicare tax because a higher $250,000 threshold applies to married couples filing a joint return. Employers are not required to notify employees of the additional Medicare tax. 

Note also that the Health Reform Law imposes a new 3.8% Medicare tax beginning in 2013 on unearned income (e.g., dividends, interest, capital gains) for the same group of higher-income taxpayers – those with incomes over $200,000 (single) or $250,000 (joint filers).  Employers are not responsible for collecting the new 3.8% Medicare tax, and are not required to notify employees of that tax.

American Fidelity Assurance Company does not provide tax or legal advice.