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Smart Benefits: Will You Be Affected by the New Medicare Tax?

Monday, December 09, 2013

 

The self-employed, small businesses and high earners should be having a little more withheld from their paychecks this year because of the additional Medicare tax (AMT) withholding stemming from healthcare reform. But while this law went into effect January 1, 2013, lots of questions since have prompted the IRS to publish final regulations on November 29, 2013.

2013 Medicare Tax Law

Key points in the final regulations include:

  • The requirement applies to all employers, regardless of size or grandfathered status. Private, government and not-for-profit employers all must withhold the tax from these individuals.
  • The employer must withhold an additional 0.9 percent of the employee's share for Medicare/Hospital Insurance (from 1.45 percent to 2.35 percent) once the employee's wages exceed $200,000.
  • The employer is not required to - and should not - match this additional 0.9 percent.
  • The additional 0.9 percent is not capped.
  • The additional withholding applies to wages over $200,000, beginning in the pay period the $200,000 threshold is met.
  • Married employees must be treated as separate individuals. All wages that are currently subject to Medicare tax are also subject to the AMT (such as imputed income).
  • The additional amount withheld for AMT will be reported with other Medicare withholding in Box 6 of the W-2.
  • The AMT withheld will be reported on a new line 5d on Form 941, 941-PR or 941-SS. "Regular" Medicare tax should be reported on line 5c.
  • There is no obligation to notify high earners of the additional withholding.
  • A similar requirement applies to self-employed taxpayers once their income exceeds $200,000. If the taxpayer has both wages and self-employment income, these amounts are combined.
  • Wages of employees who work for related employers are combined only if the employers use a common paymaster.
  • The final regulations clarify that, in general, over-withholding or under-withholding of the AMT should be handled the same as over-withholding or under-withholding of any other payroll tax. Employer-initiated corrections must occur within the same calendar year as the incorrect withholding; if the correction cannot be made during the current calendar year, the employee typically will need to make the correction through an amended income tax return (Form 1040X).

 

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Medicare Withholding

The employer is required to withhold on wages over $200,000 for all tax situations, meaning, the employee will owe the 0.9 percent AMT on wages and other compensation over:

  • $200,000 if filing as a single individual
  • over $250,000 if married and filing jointly
  • over $125,000 if married and filing single

 

Below are examples of how the withholding applies:

  • Joe is married and earns $225,000 in 2013. Joe's wife is not employed, so Joe's household income is below $250,000. Even though Joe will not ultimately owe any additional Medicare tax, Joe's employer must withhold the additional 0.9 percent once his 2013 pay reaches $200,000. The additional amount withheld will be credited/refunded to Joe when he files his federal income tax return.
  • Jane is single and earns $180,000 in 2013. She will owe the AMT on her federal income tax because her income is over $125,000. However, Jane's employer cannot withhold AMT for Jane because her income is below the $200,000 threshold. Jane may request that her employer withhold additional amounts by filing a W-4.

 

This AMT tax should not be confused with another new Medicare tax, which does not involve the employer at all. That 3.8 percent tax is payable on the lesser of the taxpayer's net investment income and modified adjusted gross income over the levels described above.

 

Amy Gallagher has over 21 years of healthcare industry experience guiding employers and employees. As Vice President at Cornerstone Group, she advises large employers on all aspects of healthcare reform, benefit solutions, cost-containment strategies and results-driven wellness programs. Amy speaks regularly on a variety of healthcare-related topics, and is often quoted by national publications on the subject matter. Locally, Amy is a member of SHRM-RI, the Rhode Island Business Group on Health, and the Rhode Island Business Healthcare Advisory Council.


Related Slideshow:
RI Communities with the Highest Tax Rates #39 - #1

How do the taxes in your community compare to other cities and towns in Rhode Island?

GoLocalProv has ranked communities from the least to the highest taxed on the basis of their tax rates, using newly released data from the state Division of Municipal Finance. The below slides list the tax rate per $1,000 in value for homes, commercial property, personal property, and motor vehicles for the 2014 fiscal year, which began last July and ends next June.

Along with the rates are examples of what taxes might cost a typical resident in each city or town. For residential taxes, this calculation is based on the current statewide median price for a single family home, which is $240,000. For communities with them, homestead exemptions are factored in using the latest available figures. For motor vehicles, the example used is a 2008 Honda Accord, valued at the maximum retail price of $15,150. The total cost of home and car taxes is then represented as a percentage of the median income for that community, offering a rough measure of how affordable taxes are for those residents as compared with the taxes in another city or town.

Data sources: the Rhode Island Division of Municipal Finance, the Rhode Island Association of Realtors, the Rhode Island League of Cities and Towns, the National Automobile Dealers Association, and the U.S. Census Bureau.

Prev Next

#39 New Shoreham

FY 2014 Tax Rates Per $1,000 in Value

Residential: $5.21

Commercial: $5.21

Personal Property: $5.21

Motor Vehicle: $9.75

Tax Cost for Residents

For a single family home valued at $240,000: $1,000.32

For 2008 Honda Accord: $147.71

Total Taxes as % Median Income: $1.29%

Note: Real property is assessed at 80 percent of value. This is reflected in the community's ranking.

Prev Next

#38 Little Compton

FY 2014 Tax Rates Per $1,000 in Value

Residential: $5.38

Commercial: $5.38

Personal Property: $10.76

Motor Vehicle: $13.90

Tax Cost for Residents

For a single family home valued at $240,000: $1,291.20

For 2008 Honda Accord: $210.59

Total Taxes as % Median Income: 1.56%

Prev Next

#37 Jamestown

FY 2014 Tax Rates Per $1,000 in Value

Residential: $8.75

Commercial: $8.75

Personal Property: $8.75

Motor Vehicle: $14.42

Tax Cost for Residents

For a single family home valued at $240,000: $2,100.00

For 2008 Honda Accord: $218.46

Total Taxes as % Median Income: $2.84%

Prev Next

#36 Charlestown

FY 2014 Tax Rates Per $1,000 in Value

Residential: $9.46

Commercial: $9.46

Personal Property: $9.46

Motor Vehicle: $13.08

Tax Cost for Residents

For a single family home valued at $240,000: $2,270.40

For 2008 Honda Accord: $198.16

Total Taxes as % Median Income: 3.56%

Prev Next

#35 Narragansett

FY 2014 Tax Rates Per $1,000 in Value

Residential: $9.80

Commercial: $14.68

Personal Property: $14.68

Motor Vehicle: $16.46

Tax Cost for Residents

For a single family home valued at $240,000: $2,352.00

For 2008 Honda Accord: $249.37

Total Taxes as % Median Income: 4.06%

Prev Next

#34 Bristol

FY 2014 Tax Rates Per $1,000 in Value

Residential: $12.80

Commercial: $12.80

Personal Property: $12.80

Motor Vehicle: $17.35

Tax Cost for Residents

For a single family home valued at $240,000: $3,072.00

For 2008 Honda Accord: $262.85

Total Taxes as % Median Income: 5.18%

Prev Next

#33 Portsmouth

FY 2014 Tax Rates Per $1,000 in Value

Residential: $14.53

Commercial: $14.53

Personal Property: $14.53

Motor Vehicle: $22.50

Tax Cost for Residents

For a single family home valued at $240,000: $3,487.20

For 2008 Honda Accord: $238.61

Total Taxes as % Median Income: 4.87%

Note: Motor vehicles are assessed at 70 percent of value. This is reflected in the community's ranking.

Prev Next

#32 Westerly

FY 2014 Tax Rates Per $1,000 in Value

Residential: $10.53

Commercial: $10.53

Personal Property: $10.53

Motor Vehicle: $29.67

Tax Cost for Residents

For a single family home valued at $240,000: $2,527.20

For 2008 Honda Accord: $449.50

Total Taxes as % Median Income: 4.93%

Prev Next

#31 South Kingstown

FY 2014 Tax Rates Per $1,000 in Value

Residential: $15.47

Commercial: $15.47

Personal Property: $15.47

Motor Vehicle: $18.71

Tax Cost for Residents

For a single family home valued at $240,000: $3,712.80

For 2008 Honda Accord: $283.46

Total Taxes as % Median Income: 5.39%

Prev Next

#30 Newport

FY 2014 Tax Rates Per $1,000 in Value

Residential: $11.71

Commercial: $16.23

Personal Property: $16.23

Motor Vehicle: $23.45

Tax Cost for Residents

For a single family home valued at $240,000: $2,810.40

For 2008 Honda Accord: $355.27

Total Taxes as % Median Income: 5.45%

Prev Next

#29 Middletown

FY 2014 Tax Rates Per $1,000 in Value

Residential: $15.71

Commercial: $20.87

Personal Property: $15.71

Motor Vehicle: $16.05

Tax Cost for Residents

For a single family home valued at $240,000: $3,770.40

For 2008 Honda Accord: $243.16

Total Taxes as % Median Income: 5.58%

Prev Next

#28 Exeter

FY 2014 Tax Rates Per $1,000 in Value

Residential: $14.72

Commercial: $14.72

Personal Property: $14.72

Motor Vehicle: $32.59

Tax Cost for Residents

For a single family home valued at $240,000: $3,532.80

For 2008 Honda Accord: $493.74

Total Taxes as % Median Income: 3.93%

Prev Next

#27 Tiverton

FY 2014 Tax Rates Per $1,000 in Value

Residential: $19.37

Commercial: $19.37

Personal Property: $19.37

Motor Vehicle: $19.14

Tax Cost for Residents

For a single family home valued at $240,000: $4,648.80

For 2008 Honda Accord: $289.97

Total Taxes as % Median Income: 7.75%

Prev Next

#26 Richmond

FY 2014 Tax Rates Per $1,000 in Value

Residential: $19.76

Commercial: $19.76

Personal Property: $19.76

Motor Vehicle: $22.64

Tax Cost for Residents

For a single family home valued at $240,000: $4,742.40

For 2008 Honda Accord: $274.40

Total Taxes as % Median Income: 6.33%

Note: Motor vehicles are assessed at 80 percent of value. This is reflected in the community's ranking.

Prev Next

#25 North Kingstown

FY 2014 Tax Rates Per $1,000 in Value

Residential: $18.80

Commercial: $18.80

Personal Property: $18.80

Motor Vehicle: $22.04

Tax Cost for Residents

For a single family home valued at $240,000: $4,512.00

For 2008 Honda Accord: $333.91

Total Taxes as % Median Income: 6.18%

Prev Next

#24 Coventry

FY 2014 Tax Rates Per $1,000 in Value

Residential: $18.66

Commercial: $22.49

Personal Property: $18.66

Motor Vehicle: $18.75

Tax Cost for Residents

For a single family home valued at $240,000: $4,478.40

For 2008 Honda Accord: $284.06

Total Taxes as % Median Income: 7.11%

Prev Next

#23 Cumberland

FY 2014 Tax Rates Per $1,000 in Value

Residential: $15.78

Commercial: $15.78

Personal Property: $28.86

Motor Vehicle: $19.87

Tax Cost for Residents

For a single family home valued at $240,000: $3,787.20

For 2008 Honda Accord: $301.03

Total Taxes as % Median Income: 5.62%

Prev Next

#22 Hopkinton

FY 2014 Tax Rates Per $1,000 in Value

Residential: $19.77

Commercial: $19.77

Personal Property: $19.77

Motor Vehicle: $21.18

Tax Cost for Residents

For a single family home valued at $240,000: $4,744.80

For 2008 Honda Accord: $320.88

Total Taxes as % Median Income: 7.80%

Prev Next

#21 Warren

FY 2014 Tax Rates Per $1,000 in Value

Residential: $18.67

Commercial: $18.67

Personal Property: $18.67

Motor Vehicle: $26.00

Tax Cost for Residents

For a single family home valued at $240,000: $4,480.80

For 2008 Honda Accord: $393.90

Total Taxes as % Median Income: 9.15%

Prev Next

#20 East Greenwich

FY 2014 Tax Rates Per $1,000 in Value

Residential: $22.90

Commercial: $22.90

Personal Property: $22.90

Motor Vehicle: $22.88

Tax Cost for Residents

For a single family home valued at $240,000: $5,496.00

For 2008 Honda Accord: $346.63

Total Taxes as % Median Income: 6.05%

Prev Next

#19 Burrillville

FY 2014 Tax Rates Per $1,000 in Value

Residential: $18.58

Commercial: $18.58

Personal Property: $18.58

Motor Vehicle: $40.00

Tax Cost for Residents

For a single family home valued at $240,000: $4,459.20

For 2008 Honda Accord: $606.00

Total Taxes as % Median Income: 7.35%

Prev Next

#18 Barrington

FY 2014 Tax Rates Per $1,000 in Value

Residential: $18.20

Commercial: $18.20

Personal Property: $18.20

Motor Vehicle: $42.00

Tax Cost for Residents

For a single family home valued at $240,000: $4,368.00

For 2008 Honda Accord: $636.30

Total Taxes as % Median Income: 5.07%

Prev Next

#17 West Greenwich

FY 2014 Tax Rates Per $1,000 in Value

Residential: $22.55

Commercial: $22.55

Personal Property: $33.85

Motor Vehicle: $19.02

Tax Cost for Residents

For a single family home valued at $240,000: $4,600.20

For 2008 Honda Accord: $288.15

Total Taxes as % Median Income: 5.81%

Note: Does not include rate for vacant land which is $16.07. Has homestead exemption.

Prev Next

#16 Foster

FY 2014 Tax Rates Per $1,000 in Value

Residential: $20.40

Commercial: $20.40

Personal Property: $28.03

Motor Vehicle: $36.95

Tax Cost for Residents

For a single family home valued at $240,000: $4,896.00

For 2008 Honda Accord: $559.79

Total Taxes as % Median Income: 7.00%

Prev Next

#15 Scituate

FY 2014 Tax Rates Per $1,000 in Value

Residential: $33.37

Commercial: $43.20

Personal Property: $39.75

Motor Vehicle: $30.20

Tax Cost for Residents

For a single family home valued at $240,000: $4,484.40

For 2008 Honda Accord: $434.65

Total Taxes as % Median Income: 6.01%

Note: Real property is assessed at only 50 percent of value and motor vehicles are assessed at 95 percent of value. This is reflected in the community's ranking.

Prev Next

#14 Glocester

FY 2014 Tax Rates Per $1,000 in Value

Residential: $21.24

Commercial: $24.14

Personal Property: $42.29

Motor Vehicle: $24.37

Tax Cost for Residents

For a single family home valued at $240,000: $5,097.60

For 2008 Honda Accord: $369.21

Total Taxes as % Median Income: 7.10%

Prev Next

#13 North Smithfield

FY 2014 Tax Rates Per $1,000 in Value

Residential: $15.86

Commercial: $17.57

Personal Property: $42.75

Motor Vehicle: $37.62

Tax Cost for Residents

For a single family home valued at $240,000: $3,806.40

For 2008 Honda Accord: $569.94

Total Taxes as % Median Income: 5.54%

Prev Next

#12 Lincoln

FY 2014 Tax Rates Per $1,000 in Value

Residential: $23.49

Commercial: $26.85

Personal Property: $36.89

Motor Vehicle: $30.66

Tax Cost for Residents

For a single family home valued at $240,000: $3,664.44

For 2008 Honda Accord: $464.50

Total Taxes as % Median Income: 5.57%

Note: Has homestead exemption.

Prev Next

#11 Warwick

FY 2014 Tax Rates Per $1,000 in Value

Residential: $19.79

Commercial: $29.68

Personal Property: $39.58

Motor Vehicle: $34.60

Tax Cost for Residents

For a single family home valued at $240,000: $4,749.60

For 2008 Honda Accord: $524.19

Total Taxes as % Median Income: 8.79%

Prev Next

#10 West Warwick

FY 2014 Tax Rates Per $1,000 in Value

Residential Rates:

  • For apartments with 6+ units: $35.26
  • For two to five family buildings: $35.26
  • For single family homes: $24.67

 

Commercial: $29.98

Personal Property: $39.00

Motor Vehicle: $28.47

Tax Cost for Residents

For a single family home valued at $240,000: $5,920.80

For 2008 Honda Accord: $431.32

Total Taxes as % Median Income: 12.70%

Note: For ranking purposes, the average of  the three residential rates was used.

Prev Next

#9 Cranston

FY 2014 Tax Rates Per $1,000 in Value

Residential: $22.84

Commercial: $34.26

Personal Property: $34.26

Motor Vehicle: $42.44

Tax Cost for Residents

For a single family home valued at $240,000: $5,481.60

For 2008 Honda Accord: $642.97

Total Taxes as % Median Income: 10.48%

Prev Next

#8 Smithfield

FY 2014 Tax Rates Per $1,000 in Value

Residential: $17.52

Commercial: $17.52

Personal Property: $61.06

Motor Vehicle: $39.00

Tax Cost for Residents

For a single family home valued at $240,000: $4,204.80

For 2008 Honda Accord: $590.85

Total Taxes as % Median Income: 6.54%

Prev Next

#7 East Providence

FY 2014 Tax Rates Per $1,000 in Value

Residential: $22.78

Commercial: $25.21

Personal Property: $56.25

Motor Vehicle: $37.10

Tax Cost for Residents

For a single family home valued at $240,000: $4,647.12

For 2008 Honda Accord: $562.07

Total Taxes as % Median Income: 10.54%

Note:  Rates are for FY 2013. Has homestead exemption.

Prev Next

#6 Johnston

FY 2014 Tax Rates Per $1,000 in Value

Residential: $28.75

Commercial: $28.75

Personal Property: $59.22

Motor Vehicle: $41.46

Tax Cost for Residents

For a single family home valued at $240,000: $5,520.00

For 2008 Honda Accord: $628.12

Total Taxes as % Median Income: 11.20%

Note: Has homestead exemption.

Prev Next

#5 Pawtucket

FY 2014 Tax Rates Per $1,000 in Value

Residential: $23.06

Commercial: $30.88

Personal Property: $52.09

Motor Vehicle: $53.30

Tax Cost for Residents

For a single family home valued at $240,000: $5,534.40

For 2008 Honda Accord: $807.50

Total Taxes as % Median Income: 16.00%

Prev Next

#4 North Providence

FY 2014 Tax Rates Per $1,000 in Value

Residential: $24.29

Commercial: $31.03

Personal Property: $69.41

Motor Vehicle: $41.95

Tax Cost for Residents

For a single family home valued at $240,000: $4,663.68

For 2008 Honda Accord: $635.54

Total Taxes as % Median Income: 10.55%

Note: Has homestead exemption.

Prev Next

#3 Woonsocket

FY 2014 Tax Rates Per $1,000 in Value

Residential: $34.56

Commercial: $39.81

Personal Property: $46.58

Motor Vehicle: $46.58

Tax Cost for Residents

For a single family home valued at $240,000: $4,976.64

For 2008 Honda Accord: $705.69

Total Taxes as % Median Income: 14.45%

Note: Has homestead exemption.

Prev Next

#2 Providence

FY 2014 Tax Rates Per $1,000 in Value

Residential Rates:

  • For owner-occupied residential property: $19.25
  • For non-owner-occupied residential property: $33.75

 

Commercial: $36.75

Personal Property: $55.80

Motor Vehicle: $60.00

Tax Cost for Residents

For a single family home valued at $240,000: $4,620.00

For 2008 Honda Accord: $909.00

Total Taxes as % Median Income: 14.21%

Note: For ranking purposes, the average of the two residential rates was used. 

Prev Next

#1 Central Falls

FY 2014 Tax Rates Per $1,000 in Value

Residential: $25.72

Commercial: $37.06

Personal Property: $73.11

Motor Vehicle: $48.65

Tax Cost for Residents

For a single family home valued at $240,000: $4,728.36

For 2008 Honda Accord: $737.05

Total Taxes as % Median Income: 14.43%

Note: Has homestead exemption.

 
 

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