The Patient Protection and Affordable Care Act, popularly known as ObamaCare, began its implementation of a new Medicare surtax on high earners on January 1, 2013. The tax will be assessed for individuals and married taxpayers who have modified adjusted gross income in excess of $200,000 and $250,000 respectively.

Employers will withhold an additional amount from wages for those earning more than $200,000 from any one employer. This amount, unlike most Social Security and Medicare Tax, is not required to be matched by the employer.

As we review the new regulations pertaining to the tax, we note that families with two working spouses are at considerable risk for being under withheld for purposes of this tax, as one spouse may be under the limit, but the two spouses added together may exceed it.

Example #1
Taxpayer Earns $175,000
Spouse Earns $150,000
Total Wages $325,00

Total Wage Subject to Withholding = $0
Total Wage Subject to Tax = $75,000
Total Tax Underpaid = $675

Taxpayers subject to self-employment tax from ownership interest in a sole proprietorship or partnership are also subject to the tax, but do not have the luxury of an employer who may be required to withhold the tax.

Example #2
Taxpayer (Self Employed) Earns $250,000
Spouse (W-2) Earns $100,000
Total Earnings $350,000

Total Subject to Tax = $100,000
Total Tax Due with Return/Estimated Taxes = $900

The vast majority of taxpayers will not notice these changes until their checks exceed $200,000. A final example shows how the tax may affect a taxpayer who changes jobs in the middle of the year.

Example #3
Taxpayer (Job #1) Earns $150,000
Taxpayer (Job #2) Earns $150,000
Taxpayer (Sch C) Earns $15,000
Total Earnings $315,000

Total Subject to Tax = $115,000
Total Tax Underpaid = $1,035

If you have any questions about how this, or other provisions of the Patient Protection and Affordable Care Act affects your tax situation, please contact our office.