As per the new regulations, now the employers have to deduct 0.9% additional hospitality tax for the people who are falling in the category of High-Income taxpayers (commonly referred as additional Medicare tax). This new tax slab was adopted from 1st Jan, 2013.
Individuals, employers and the payroll service providers all now have to re-work on their slabs in order to attain this new tax change. As per 2012, Federal Insurance Contributors Act (FICA) wages were subject to a 2.9% Medicare tax, which was bear by the company as well as the employees with the equal percentage of 1.45% each.
Now, from the beginning of 2013, under the act of patient protection and affordable care; employees will have to accept an additional liability of 0.9% on FICA wages and self-employment income. The people who will fall under this categories are:
$250,000 for joint fillers
$125,000 for married taxpayers filling form separately (and)
$200,000 for individuals who are household heads and other filers.
In comparison with the regular Medicare Tax, additional Medicare tax will not give any consideration to employer portion. However, employers will be obligated to suppress the additional tax for an employee whose wages exceed $200,000 in a calendar year.
How to calculate a tax?
With this new policy in picture, now individuals are required to recompense additional medical taxes with their income tax returns. They have to implement straight forward formula while filling up their taxes. An individual has to calculate the excess of wages (or self-employed income) on top of applicable threshold income. Once the sum is ready, he can then multiply that amount by 0.9% in order receive the accurate amount of tax he is liable for.
An individual can follow this three step process to calculate the medical tax:
1. Understand your category in which you are falling and then take the sum of additional medical tax on wages which you are exceeding as a threshold.
2. Deduct the applicable threshold by the total amount of medical wages which you have received in a calendar year.
3. Now, calculate the additional Medicare tax over the self-employment income to extent it exceeds the reduced threshold.
Claims, refunds and further adjustments:
Current regulations also entitle an individual to make interest-free adjustments if there is a case of under or over payment without too much of a hassle. Taxpayer will be able to do these adjustments by filling up an appropriate correction form (e.g. 941-x form). He later can also apply for the reimbursement for the overpaid amounts or can request for the collection for the underpaid amounts from his wages before the end of the year.
It is important to note that under payments can only be adjusted in the same year. The employer will be held responsible for the correct amount of tax, even if it’s unable to deduct the underpaid amount for his employee’s payroll processing.
This new amendment in the tax slab was introduced for better structure in the medical facilities and to remove a bit of burden from government shoulders. So far, the results are going fine of the same. So, remember to accurately calculate your tax with this new Medicare policy.