HR Express on PPACA
Employers may want to warn their Highly Compensated Employees of the new tax impact of PPACA.
Beginning with the tax year 2013, there will be new tax liabilities for highly compensated employees and their families under the PPACA. Employers may wish to at least communicate these changes now so that affected employees can begin to plan for the increase tax burden.
Increase in Medicare Tax to 2.35%
For taxable years beginning after Dec. 31, 2012, employers will be required to withhold additional amounts from the wages of highly compensated employees. The Medicare tax rate will be increased by .9 percent from the current rate of 1.45 percent on wages over $200,000 for single filers, wages over $250,000 for joint filers, and wages over $125,000 for persons who are married but filing separately. The IRS has provided a Q&A to help employers comply.
Medicare Tax on Investment Income Tax of 3.8%
Beginning with tax year 2013, single taxpayers who earn more than $200,000 and married taxpayers with combined income of more than $250,000 will be charged a new 3.8 percent Medicare tax on their investment gains. The tax will be applied to investment income including interest, dividends, capital gains, the taxable portion of annuity payouts, rent and royalties.
Many highly compensated employees and their families will need to re-evaluate their current financial planning to reflect the impact of PPACA. A sample employee communication can be found on our website. Feel free to use this to begin alerting your employees of the possible impact of these new taxes.