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

What to do as a boss in the age of pay transparency Navigating pay transparency in the workplace can be a delicate balancing act for bosses.  On the one hand, it’s important to be open and honest about compensation, but on the other hand, there may be concerns about privacy and sensitive information. First, a […]
Read more
Shining a Light on Compensation: The Bold Move Toward Pay Transparency Let’s talk about the rise of pay transparency in the United States. It’s a hot topic but also relevant as more companies (and employees!) are demystifying employee pay. Pay transparency is the practice of openly and honestly sharing information about salaries, bonuses, and other […]
Read more
Are You Paying Your High-Earning Employees Correctly? In a recent case, the Supreme Court issued an opinion clarifying the overtime-exempt status requirements under the Fair Labor Standards Act (FLSA).  The ruling emphasizes the importance of the salary-basis requirement for high-earning employees to be overtime-exempt under the FLSA. Here’s what you need to know: Under the […]
Read more
Don’t worry. Nextep’s payroll processing is unaffected by the SVB closure. At Nextep, we understand that the recent closure of Silicon Valley Bank (SVB) has caused concern for our clients and their employees who bank with SVB. We want to assure you that Nextep’s ability to process payroll remains unaffected by this event. We are […]
Read more
On December 29, 2022, President Biden signed into law two bills that add protections for pregnant and post-partum employees. Here is what we know. Providing Urgent Maternal Protections for Nursing Mothers Act The PUMP Act amends the Fair Labor Standards Act (FLSA) to expand coverage to all employees (exempt and non-exempt). Employers are required to […]
Read more
Your Guide to DOL’s Latest Guidance on Telework, Lactation Breaks, and FMLA Eligibility for Remote Employees Are you an employer of employees who telework, or employees who needs breaks for lactation? Then you’ll want to read this update! The US Department of Labor (DOL) recently released Field Assistance Bulletin (FAB) No. 2023-1, which covers several […]
Read more
Your Guide to the Latest Court Ruling on the FLSA Administrative Exemption If you’re an employer in Maine, Massachusetts, New Hampshire, Rhode Island, or Puerto Rico, listen up! The 1st US Circuit Court of Appeals has clarified the Fair Labor Standards Act’s (FLSA) administrative exemption, and it could be a game-changer for your business. In […]
Read more
Empowering Employees and Employers Alike to Create Inclusive Work Environments As of January 24, 2023, the Equal Employment Opportunity Commission (EEOC) has updated its guidance on correctly handling people with hearing disabilities at work under the Americans with Disabilities Act (ADA). This updated guidance is essential for employers looking to create a more inclusive and […]
Read more
Your Intro to the H1-B Visa Process Exciting news for employers eagerly anticipating the 2024 H-1B cap initial registration period! Federal immigration officials have officially announced that registration will open between March 1 to March 17, 2023. Employers can register for the H-1B cap using USCIS’s online registration system. The H-1B visa, as a reminder, […]
Read more
Rest Up! For Illinois Workers, ODRISA is Now Law Beginning in 2023, The One Day Rest In Seven Act (ODRISA) allows Illinois employees the right to take one day off in seven, plus breaks during a long workday.  Here’s a breakdown of the basics: Employees must get a minimum of 24 hours of rest every […]
Read more
Starting in 2023, Illinois workers have expanded job-protected bereavement leave under the Family Bereavement Leave Act (FBLA). Let’s dig into the details. FBLA allows eligible employees to take up to 10 work days of unpaid leave following the death of a family member. Specifically, they are allowed time for any of the events covered by […]
Read more
Your medical leave could qualify for paid time off if you work in Colorado.  We’re familiar with the Family Medical Leave Act (FMLA), allowing qualified employees up to 12 weeks of unpaid, job-protected leave to care for themselves or a family member during certain medical or family events. But the FAMLI program takes this coverage […]
Read more

Download Our App