Additional Medicare Tax: The IRS issued proposed regulations (REG-130074-11) and FAQs on the 0.9% additional Medicare tax, imposed by IRC Sec. 3101(b)(2), that will begin in 2013. Individuals are liable for the tax to the extent wages, compensation, or self-employment income exceeds $250,000 for MFJ ($125,000 MFS/$200,000 Single). Employers must withhold the additional tax from wages paid in excess of $200,000, without regard to the person’s filing status. Employers are not required to notify employees when they begin additional tax withholding, nor is there an employer matching of the withheld amount. A line will be added to Form 941 (Employers Quarterly Federal Tax Return) for employers to report any individual’s wages paid during the quarter that are in excess of $200,000. However, there will be no change to Form W-2, as the additional tax withholding will be reported with regular Medicare tax withholding in box 6.
3.8% Net Investment Income Tax: Proposed regulations (REG-130507-11) and FAQs were released for the 3.8% net investment income tax, imposed by IRC Sec. 1411 , that is set to begin in 2013. The tax applies to the lesser of (1) net investment income, or (2) the excess of modified adjusted gross income over $250,000 for MFJ ($125,000 MFS/$200,000 Single). In general, net investment income includes interest, dividends, capital gains, rent and royalty income, non-qualified annuities, income from businesses involved in trading financial instruments, and income that is passive to the taxpayer. The tax will not apply to gain excluded on the sale of a personal residence.