The Patient Protection and Affordable Care Act provides that, beginning in 2013, a new 0.9% Medicare surtax will be imposed on wages and self-employment (SE) income in excess of specific MAGI threshold amounts: $250,000 for joint filers; $125,000 for married filers; and $200,000 for all other taxpayers. The employer portion of the Medicare tax is not increased in 2013.
Observation: Employees generally pay Medicare taxes at a 1.45% rate on all wages. This new provision will increase the rate to 2.35% in 2013 on wages exceeding the applicable threshold amounts.
Some taxpayers can eliminate or minimize this new surtax by implementing strategies to reduce SE income. These include, among others, leasing real property to the taxpayer’s closely held business, renting business property to a proprietor spouse, employing family members in the business, and, in certain situations, adopting a self-insured medical reimbursement plan.
Please contact Martini, Iosue & Akpovi by phone at (818) 789-1179 if you have questions or want more information.