Finance & Enjoyment Blog

There has been much talk about the 3.8% Medicare surcharge on investment income that will
occur in 2013, but another tax increase many tax experts have glossed over is the .9% Medicare
surcharge on wages and self-employment income above certain thresholds. For individuals, this
threshold is $200,000 while couples will meet the threshold at $250,000. This extra medicare charge is
only assessed on the employee's share of the Medicare payment, and the employer does not owe
anything extra except the already existing 1.45%.

The IRS has instructed the employer to withhold the extra percentage from the employee's
paycheck upon reaching the threshold, but in certain circumstances it will fall upon the employee's
responsibility to withhold the additional amount to avoid further tax, penalties, and interest at year-end.
For example, if each spouse makes $150,000 a year, their employer will not withhold the extra amount,
yet they will owe an extra $450 at year end. Another example would be if an employee has a profitable
business on the side. Any income made from this business will add to the amount used to calculate the
surcharge. The most pain-free way to handle this surcharge will be to remain aware of the limits and
check your year-to-date W2's around December. If you're over the limit, then have some additional
withholding taken on your year-end paycheck.

Posted in Your Financial House » Rules and Regulations »

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