Reminder: Employers Subject to Additional Medicare Tax Withholding & Reporting Requirements, Effective 1/1/2013

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Author, Laura Westfall, New York, +1 212 556 2263, lwestfall@kslaw.com

The Patient Protection and Affordable Care Act (“PPACA”) increased the employee portion of the Medicare tax on wages received on or after January 1, 2013 by 0.9% of Federal Insurance Contributions Act (“FICA”) wages which are in excess of certain threshold amounts based on the filing status of the employee ($250,000 in the case of a joint return, $125,000 in the case of a married taxpayer filing a separate return, and $200,000 in any other case) (the “Additional Medicare Tax”). Beginning January 1, 2013, PPACA also requires each employer to withhold the Additional Medicare Tax on wages it pays to an employee in excess of $200,000 in a calendar year, without regard to the employee’s filing status or wages paid by another employer. Proposed regulations (“Proposed Regs”) and a set of “Frequently Asked Questions and Answers” (“FAQs”), both issued by the IRS on December 5, 2012, provide guidance for employers and individuals relating to the implementation of the Additional Medicare Tax, the requirement to file a return reporting the Additional Medicare Tax, the employer process for making adjustments of underpayments and overpayments of the Additional Medicare Tax, and the employer and employee processes for filing a claim for refund for an overpayment of the Additional Medicare Tax. According to the Proposed Regs and the FAQs, an employer is required to begin withholding the Additional Medicare Tax in the pay period in which such employer pays wages in excess of $200,000 to an employee. The Proposed Regs and the FAQs also state that an employer that does not deduct and withhold the Additional Medicare Tax as required will be liable for the Additional Medicare Tax unless the amount that the employer failed to withhold from the employee's wages is paid by the employee; in addition, even if such amount is ultimately paid by the employee, the employer may be subject to penalties for failing to meet its withholding, deposit, reporting, and payment responsibilities with respect to the Additional Medicare Tax. Although the Additional Medicare Tax went into effect January 1, 2013, employers may rely on the Proposed Regs for tax periods beginning before the date the IRS publishes final regulations, according to the IRS. For more information on the new Additional Medicare Tax withholding and reporting requirements, please feel free to contact King & Spalding LLP.