Obamacare – What You Need to Know (Part 2)

Part 2: New Medicare Taxes to Start in 2013


Photo taken by José Goulão on Flickr.com

In my last post I wrote about the penalty you could pay if you don’t have health insurance.  Those taxes start in 2014.  Today, I’m going to talk about the new Medicare taxes that are supposed to start next year in 2013.


First thing to know – if your income falls below $125,000 a year – you don’t even need to read the rest of this, it’s not going to affect you.  (You’re welcome to stay, I like when you stay, and I just don’t want to waste your time.)


But the additional Medicare tax is really targeted at higher income earners.  Starting in 2013, an additional .9% hospital insurance (I’m going to call that HI for short) will be imposed on wages in the following categories:


over $250,000 for married taxpayers filing a joint return (MFJ),

over $125,000 for married taxpayers filing separately (MFS), and

over $200,000 for singles and head of households (Single and HOH)

* Employers will begin withholding the HI tax on any wages that are in excess of $200,000.  Wages earned by your spouse are not taken into account in the withholding calculations.


So let’s say you’re married and your joint income is $300,000.  Your additional HI tax would be computed as follows:

300,000 – 250,000 = $ 50,000 (that’s the excess over the threshold)

50,000 x .009 = $ 450


If you are an employee at a company, your boss would be withholding the excess from your wages.


If you are an employer and you have employees that earn over the threshold, you do not have to pay the employer match like you do with the regular Medicare tax – this HI (hospital insurance) tax is for employees only.  You’re still paying it with your payroll tax return because you withheld the funds, but you’re not matching the funds with your own money.


If you are self employed you have to pay the HI tax on your earnings.


What that could mean to you – Let’s say you’re married and you and your wife each earn $190,000 a year.  Your combined income is $380,000 a year so you’d have to pay a HI tax of $1,170 ((380,000 income – 250,000 MFJ threshold from table above) * 0.009).  Because neither of your individual incomes put you over the threshold, you won’t have withheld enough and you’ll have to pay the additional tax.


Likewise, let’s say you’re married with a non-working spouse.  You make $250,000 a year.  Your employer has withheld an extra $450 from your pay because you made over $200,000 – but since you’re married, your filing threshold is $250,000 so you should be getting that excess $450 back.  (To get to this $450 withholding, we take ($250,000 income – 200,000 employer holding threshold) * 0.009.)


So that’s the new Hospital Insurance tax on higher wages and self employment income.


There’s also a new HI tax on investment income.  Once again, that will also be on folks with higher incomes.  I’ll be tackling that in my next post.


Note from Editor:  Since I am a numbers guy, I added a chart to demonstrate the amount of HI Tax you could incur.   Because the 0.9% is a flat rate (meaning it never changes), for each increase of $1,000 in income, the HI tax will increase by $9.  Here I am going to show increments of $5,000 which will result in $45 increases.


Hospital Insurance Tax for High Income Earners
HI Tax Rate Excess Over Threshold Amount (The amount being taxed) Total (HI) Tax
0.009 x $ 5,000 = $45
0.009 x 10,000 = 90
0.009 x 15,000 = 135
0.009 x 20,000 = 180
0.009 x 25,000 = 225
0.009 x 30,000 = 270
0.009 x 35,000 = 315
0.009 x 40,000 = 360
0.009 x 45,000 = 405
0.009 x 50,000 = 450
0.009 x 55,000 = 495
0.009 x 60,000 = 540
0.009 x 65,000 = 585
0.009 x 70,000 = 630
0.009 x 75,000 = 675
0.009 x 80,000 = 720
0.009 x 85,000 = 765
0.009 x 90,000 = 810
0.009 x 95,000 = 855
0.009 x 100,000 = 900


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