We’re pleased to welcome back Scott Clarke, accountant from Brown Edwards, with a helpful post about tax obligations for employers, including construction companies, related to Obamacare. More information about Scott is below the post.
Health care reform has been all over the news lately, but there has been little coverage of the new taxes being enacted as a part of the reform. An additional Medicare surtax of .9% will be imposed on the wages and self-employment income of “higher income” taxpayers, which includes:
- single taxpayers with $200,000 of applicable income;
- joint and surviving spouse taxpayers with $250,000 of applicable income and
- married filing separate taxpayers with $125,000 of applicable income.
Individuals alone will be liable for this additional Medicare tax; there is currently no provision for an “employer match” of the surtax as there is with the regular Medicare tax. This also, of course, means that no deduction will be allowed for self-employed individuals in arriving at their adjusted gross income. Employers of these taxpayers will be required to withhold on wages and compensation paid in excess of $200,000. The employer has this obligation to withhold even though an employee may not be liable for the surtax when his or her earned income combined with those of the spouse, if filing a joint return, does not exceed the $250,000 threshold. Any excess withholding will be credited against the total tax liability of the taxpayer’s individual income tax return.
As an example, consider a married taxpayer who earns $225,000 in wages and compensation and a spouse with no earned income. The employer must withhold the additional tax on $25,000 and the taxpayers will be able to credit the withholding against its total income tax liability. Likewise, consider a married taxpayer who earns $180,000 in wages and compensation and a spouse who earns an identical amount. In this case, neither taxpayer will have withholding at the increased level; but they will be liable for the surtax on $110,000. This will be due with the taxpayers’ income tax return. In that situation, the taxpayers cannot request the employer to specifically withhold additional Medicare tax; however, the taxpayers can submit revised Form W-4’s requesting additional income taxes be withheld or make quarterly estimated income tax payments.
Scott Clarke serves as an assurance partner in the Roanoke office. He has extensive experience in providing audit, review and compilation services to a wide variety of clientele as well as reviewing and preparing federal and state income tax returns for corporations, partnerships, individuals, not-for-profits and employee benefit plans. His clientele include contractors, retailers, manufacturers, wholesalers, professionals, developers, water companies and not-for profit organizations. He has been certified by the Institute of Certified Construction Industry Financial Professionals, Inc. (CCIFP) in the areas of construction accounting and reporting, income recognition methods, budgeting and planning, risk management, taxes, human resources, legal, IT and joint ventures and recently was certified by the National Association of Construction Auditors as a Certified Construction Auditor.