Medicare Tax is Increasing for High Wage Earners

Beth Dean 12.05.12
112 Desk Brown Tones

Health care reform’s Affordable Care Act (ACA) includes a provision in which high wage earners will be subject to increased Medicare taxes once an earnings threshold has been met.

Employee wages are currently subject to a 1.45% Medicare tax rate, paid by both the employee and the employer. Effective January 1, 2013, the employee portion of Medicare tax withholding will increase from 1.45% to 2.35% once the employee has earned $200,000 in the calendar year.

Only wages earned over $200,000 in a calendar year are subject to the increased tax rate; all wages earned before the threshold is met will be taxed at 1.45%. If married filing jointly, the Medicare tax threshold amount increases to $250,000. In accordance with the IRS, this variation will be reconciled on the individual’s tax return rather than through paycheck deductions.

Example: An employee and spouse each earn $150,000 per year. Since they individually earn less than $200,000, neither will have increased Medicare taxes deducted from their paychecks. However, their combined income is $300,000, so $50,000 of those earnings will be subject to additional taxes when filing their joint tax return.

This increase affects the employee only; the employer portion will remain unchanged at 1.45% regardless of the employee’s earnings.

Nextep has already made necessary changes to comply with this law and ensure that all employees will be properly taxed. No further action is needed by Nextep clients at this time.

For additional information, please refer to the IRS guidance or contact Nextep’s Payroll Department.

Also on Nextep

Get the low down on how to handle pay correctly. Should you pay your employees for working during lunch? Yes.  Easy answer! Right? Well, no. Though the simple answer is an emphatic yes, it’s a bit more nuanced.  The topic of lunch and compensable time can be tricky. There are many ways an employee could […]
Read more
Could your employee handbook stand up to a lawsuit or EEOC claim? Here are six tricky areas that could mean trouble for your company. Landmine 1: A handbook that’s older than dirt When was the last time you reviewed your company’s employee handbook? If it’s been longer than a year, then it’s been too long.  […]
Read more
Finding a PEO can be a daunting task. You should feel confident in your partnership with Nextep or any PEO for that matter. To ensure you do, we’ve put together a short checklist of questions to ask in your meetings with PEOs.  1. What accreditations and certifications do you hold?  A few credentials you’ll want […]
Read more
(JANUARY 13, 2022) UPDATE: The Supreme Court halted OSHA’s emergency temporary standard (or ETS) to enforce COVID-19 vaccination statuses for employees. While there’s a chance new OSHA guidance could emerge at some point, you can disregard the previously announced vaccination mandate deadlines. As always, we’ll keep you in the loop if new legislation emerges. If you […]
Read more
It’s important to know about upcoming changes to tax laws for businesses. Prepare your company’s budget with this cheat sheet! 2022 Tax Update Breakdown Social Security wage base First $147,00 of wages in 2022 FICA – Social Security (OASDI) 6.2%, up to the wage base FICA – Medicare 1.45% up to $200,000, then 2.35% (The […]
Read more
Even an employer with the best of intentions can become the subject of a lawsuit. Lawsuits by employees are the biggest source of litigation against US entities (Beazley), making it essential for companies to protect themselves against lawsuits. This is where Employment Practices Liability Insurance (EPLI) can offer major financial protection for your company. What […]
Read more
Along with the new year comes new minimum wages for several states on January 1, 2022, that employers should be aware of. As a reminder, when state law differs from federal law, employers must use the wage that benefits the employee the most. In this case, the state minimum wages are higher than the $7.25 […]
Read more
Did you know partnering with a professional employer organization (PEO) can lower your company’s risk?  There are plenty of ways a PEO can take the burden of compliance off your plate to focus on company goals, attracting top talent, and being an employer of choice among competitors.  Here are some notable benefits of partnering with […]
Read more
After multiple delays, Texas officially released its new, increased SUTA rates, creating additional tax payments for many companies. While SUTA rate notices typically occur at the end of each year, many were delayed due to COVID-19. With unprecedented unemployment claims, state unemployment funds were depleted quickly. This rise in unemployment also affected the state SUTA […]
Read more
Minimum wages across many cities and a handful of states will increase on July 1, 2021. As a reminder, when state law differs from federal law, employers must use the one that benefits the employee the most. For example, if a state’s minimum wage is higher than the $7.25 federal minimum wage, it must be […]
Read more
There are many new or updated state laws or employers that will go into effect on July 1, 2021. If your state has an update, you’ll find it below. As with any other regulation, laws are subject to last-minute changes, visit the Department of Labor online for more info. You can also find minimum wage […]
Read more
Under the OSHA Act, employers are responsible for providing a safe work environment, free from hazards that can cause serious harm. On June 10, 2021, the Department of Labor (DOL) along with the Occupational Safety and Health Administration (OSHA) posted new guidance to protect at-risk and unvaccinated employees from COVID-19 in the workplace.  Requirements Part […]
Read more

Download Our App