IRS Issues Proposed Regs for Additional Medicare Tax

Comments due March 5

On December 3, 2012, the IRS issued and requested comments on proposed regulations that provide guidance to employers and individuals on the implementation of the increase in Medicare payroll taxes under the Affordable Care Act.

Specifically, the proposed regs govern the withholding, computation, reporting, and payment of the additional Medicare tax on wages, self-employment income, and Railroad Retirement Tax Act compensation.

The proposed regs also establish when and how employers may make an interest-free adjustment to correct an overpayment or an underpayment of the additional Medicare tax and how employers and employees may claim refunds for overpayments of the tax.

Comments on the proposed regs are due by March 5 and can be submitted to the IRS electronically (REG-130074-11). Read the proposed regs here.

Background and Compliance Timetable

The Affordable Care Act increased the employee portion of the Medicare payroll tax by an additional 0.9% as of Jan. 1, 2013. The tax applies only to wages in excess of the following threshold amounts, which are based on the tax filing status of the employee:

• Married filing jointly, $250,000
• Married filing separately, $125,000
• Single, $200,000
• Head of household (with qualifying person), $200,000
• Qualifying widow(er) with dependent child, $250,000

With regard to specific matters discussed in the proposed regulations, taxpayers may rely on the proposed regulations for tax periods beginning before the date that the final regulations are published in the Federal Register. If any requirements change in the final regulations, taxpayers will only be responsible for complying with the new requirements from the date of their publication.