Affordable Care Act Update: Additional Medicare Tax Withholding Required in 2013

By Steve Gerlach

The IRS recently issued guidance for employers on withholding the Additional Medicare Tax required under the Affordable Care Act starting in 2013.

• The AddMed Tax applies to employee compensation and self-employment income earned on or after January 1, 2013.
• The AddMed Tax is levied against the same income as regular Medicare tax, which, among other things, includes taxable fringe benefits and tips.
• The tax rate is 0.9%.
• There is no “employer match” like there is with regular Medicare tax.
• Employers are required to withhold the AddMed Tax on compensation in excess of $200,000 per year, without regard to the employee’s actual household income.
• Employers are required to begin withholding in the pay period in which the employee exceeds $200,000 annual compensation.
• Employers are liable for the tax whether or not it is withheld. Amounts owed by the employer will be offset by amounts paid by the employee. 
• Employers are not required to provide notice to employees when AddMed Tax withholdings are about to begin.
• Employees may request additional withholding on form W-4, but may not earmark the withholding for the AddMed Tax. The additional withholdings, however, will nonetheless be applied to the AddMed Tax on the employee’s 1040.
• Employees may also make estimated tax payments to cover the AddMed Tax.
• The IRS will modify Form 941 to accommodate reporting and payment of AddMed Tax withholdings.
• W-2 Forms will not change for the AddMed Tax. 

COMING SOON: On December 28, 2012 the IRS issued new regulations regarding the pay or play system. Look for an upcoming alert outlining the regulations and what employers need to know.

To help employers with ACA compliance, Bernstein Shur has assembled an ACA Team — a multi-specialty group of attorneys from employment law, litigation, business law and ERISA. The ACA Team is available for flat-fee, full compliance audits and half-day and full-day “bottom-line” workshops.

For more information about the ACA or our services, please contact Steve Gerlach in Portland, ME, at 207 228-7128 or sgerlach@bernsteinshur.com or Karen Aframe in Manchester, NH, at 603 623-8700 or kaframe@bernsteinshur.com.