Increased Medicare Tax Withholdings in 2013




The 2010 healthcare reform legislation included several provisions that go into effect this year.  Among them is the increase in Medicare taxes for taxpayers with income above certain levels.

Payroll Medicare tax will increase from 1.45% of wages to 2.35% on amounts aove $200,000 earned by individuals and above $250,000 earned by married couples filing joing returns.  The tax increase will also apply to self-employment inc ome exceeding the threshold amounts.

Employers are required to withhold the additional tax from wages exceeding $200,000 regardless of the individual's filing status.  They are not required to inform the employee when they begin the additional withholding nor are they required to matche the additional withholding.


New 3.8% Medicare tax on unearned income for single taxpayers with adjusted gross income over $200,000 and married couples with income over $250,000.  The tax will apply to the lesser of (a) net investment income or (b) the amount by which modified adjusted gross income exceeds the $200,000 and $250,000 thresholds.  The tax may require adjustments to the estimated taxes paid by an individual but it does not have to be withheld from wages.

Examples of unearned income include interest, dividends, capital gains, royalties and rental income.  Social security benefits, alimony, tax-exempt interest and distributions from most retirement plans are examples of unearned income not subject to this new tax.

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