IRS issues guidance on 0.9% additional Medicare tax.

• Author: Nevius, Alistair M.

The IRS issued proposed regulations concerning the 0.9% Medicare surtax, which took effect Jan. 1 (REG-130074-11). The proposed regulations contain guidance for employers and individuals on the implementation of the tax, including the requirement to file a return reporting the tax, the process for employers to make adjustments of underpayments and overpayments of the tax, and the processes for employers and employees to file claims for refund for an overpayment of the tax. The IRS intends to finalize the rules sometime in 2013; however, taxpayers may rely on the proposed rules now.

The additional Medicare tax was enacted as part of 2010's health care reform legislation. It imposes an additional 0.9% tax on FICA wages, Railroad Retirement Act compensation, or self-employment income that exceeds certain threshold amounts: $250,000 for married taxpayers filing jointly; $125,000 for married taxpayers filing separately; and $200,000 for other taxpayers. The additional Medicare tax is not imposed until wages exceed those thresholds, and there is no corresponding amount owed by the employer. The tax is effective for wages received in any tax year starting after Dec. 31, 2012.

Withholding

The proposed regulations provide that an employer must withhold additional Medicare tax from an employee's wages only to the extent that the wages the employee receives from the employer exceed $200,000 in a calendar year. In determining whether wages exceed $200,000, the employer does not take into account the employee's filing status or other wages or compensation that may affect the employee's liability for the tax.

An employee may not request that the employer deduct and withhold additional Medicare tax on wages of $200,000 or less. However, an employee who anticipates that he or she will be liable for additional Medicare tax--for example, if household wages will exceed the married filing jointly threshold--may request that the employer deduct and withhold an additional amount of income tax on Form W-4, Employee's Withholding Allowance Certificate.

Reporting and Payment Obligation

An employee is liable for additional Medicare tax on wages or compensation to the extent that the tax is not withheld by the employee's employer. Individuals must report the tax on Form 1040, U.S. Individual Income Tax Return, and will * claim on the Form 1040 credit for any tax withheld or pay any tax due that was not previously withheld or paid as an estimated tax.

The proposed...