The Affordable Care Act creates a .9% Medicare tax increase on those earning wages in excess of $200,000 ($250,000 for married couples filing jointly and $125,000 for married couples filing separate). The increase will take effect January 1, 2013.
An employer will be required to withhold the additional tax once an employee’s wages are over the threshold, even if the employee may not ultimately be liable for the tax.
For example, consider a situation where one spouse earns $210,000, the other earns $25,000, and they file a joint return. Although the employer would be required to withhold on the higher earner’s wages to the extent they exceed $200,000, the couple would not actually be liable for the additional Medicare tax because their combined wages are less than the applicable $250,000 threshold. In this case any excess Medicare tax withheld will be credited against the total tax liability shown on the couple’s personal income tax return.
Alternatively, a husband and wife earning $150,000 each would not have the additional Medicare tax withheld but would be liable for the additional tax ($50,000*.9%) when filing their tax return.