Medicare Payroll Tax Update

The Medicare Payroll Tax is Increasing for Certain Individuals

According to information obtained from Paychex payroll services, with the the new tax year starting on or after January 1, 2013, the 2010 Health Care Bill requires higher-income taxpayers to pay a higher Medicare tax rate on wages, other compensation, and self-employment income over the below thresholds:

Under the new law, high-income individuals will pay an additional Hospital Insurance (HI) tax rate of 0.9 percent on earned income in excess of:

  • $200,000 for single, head of household with qualifying child, and qualifying widow(er) with a dependent child.
  • $250,000 for married couples filing jointly, and
  • $125,000 for married couples filing separately.

Employees generally pay Medicare taxes at a rate of 1.45 percent on all wages, matched by an equal amount from employers.  The rate for higher income taxpayers on wages that exceed the wage threshold will increase the Medicare tax to 2.35 percent.

Employers, however, are not required to match the 0.9 percent to be withheld from their employees.

The increase Hospital Insurance tax withheld should be reported on the 2013 W-2 in Box 6.  Additionally, the IRS plans to modify Forms 941, 943, and the tax return schemas for the F94X series of returns, to report the excess wages.

For more information regarding the changes, visit the IRS website at http://www.irs.gov/Business/Small-Businesses-&-Self-Emplyed/Questions-and-Answers-for-the-Additional-Medicare-Tax