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One of the truly amazing things about the Health Reform Act is that new requirements will keep coming for about the next six years. Some are so onerous that we should all hope that they are changed before they are implemented. Companies with more than 50 employees should start now to become acquainted with some of the information filing requirements that will be implemented in 2014. We concern ourselves here with income tax laws already in effect for 2013.
The first concern is an excise tax of 2.3 percent on the sale of medical equipment to medical facilities or doctor’s offices. Medical supplies that retailers sell (drugs, blood pressure machines for home use, humidifiers, etc.) are excluded.
Next is a requirement that the cost of an employee’s medical insurance is to be shown on the W-2. As a company pays premiums, it needs to be able to record the information to the employee’s payroll records. It will be a difficult task to scramble through insurance premiums in January, 2014. There is currently a moratorium on this requirement for firms with under 250 employees, but the IRS has the right to remove this exception until July 1, 2013.
The third is the new Medicare tax on wages. Both the employer and individuals are involved in this. We’ll start with the employer. There is a new 0.9 percent Medicare tax on employees whose wages exceed $200,000 if single, $250,000 if married, and $125.000 if married filing separately. The employer is responsible for withholding the 0.9 percent from the employee’s wages. The employer, however, is not liable for matching that withholding, as the company is with the 0.0145 percent regular Medicare tax. Furthermore, no withholding is required until the employee reaches $200,000 in wages, even though (s)he may be on track to do so from the beginning of the year. The employer also can keep it simple in the sense that it can base the withholding on its records and doesn’t need to factor in the employee’s income from other sources, e.g. spouse income or a second job.
Married and Individual Differences
Individuals have the more complex situation. Married individuals may find themselves paying tax when separately neither reached $200,000. For example, one spouse earns $150,000, the other $125,000. Neither had withholdings at work, but on a joint return they are liable for the 0.9 percent tax on $25,000. Another example: If one spouse earned $225,000, presumably the tax was withheld on $25,000. But if the other spouse earned $100,000, the tax is owed on $75,000 ($325,000-$250,000), with tax withheld only on the $25,000; they will owe an additional $450 in tax. Of course withholding could result in an overpayment. An employee earns $225,000 and has withholding on the $25,000; but (s)he’s married and the spouse is unemployed.
Since the combined income is less than $250,000, the withheld tax will be refunded, if other tax payments cover the regular tax liability. Are we having fun yet?
Individuals who are self-employed or are active members of a partnership or an LLC are also subject to this tax. The net self-employment or K-1 income subject to FICA tax is combined with any W-2 wages in reaching the $200,000/$250,000 limit.
Without having any special insight into IRS thinking, I believe that the tax will be computed on what is now the self-employment tax form (form 1040-SE) or something similar to it. The taxpayer enters the wages, subtracts the exclusion amount, computes the tax and deducts the withholding. The resulting tax addition or deduction will go to page 2 of Form 1040.
