Additional Medicare Tax Under the Affordable Care Act
The Affordable Care Act led to some new tax liabilities for many Americans. It's important for you to understand the additional tax payments you may now be responsible for. If you owe more in taxes, you are not alone. Many Americans have had to pay more in taxes as a result of the Affordable Care Act. At the same time, many Americans have also had more affordable access to health care.
One new tax that has been around the last few years is the Additional Medicare Tax. You might be required to pay this tax. This tax is generally required of higher income Americans. If you are required to pay this tax, you might want to learn more about it. You'll definitely need to know how much tax you're liable for under the new tax. In addition, you might be interested in learning what that money is going toward.
The following is some key information to know about this relatively new tax.
What Is Additional Medicare Tax
This tax is a tax that's added on to the pre-existing Medicare tax. With this tax, some taxpayers have to pay an additional 0.9 percent in Medicare tax. This has been required since 2013, and it is a part of the changes brought by the Affordable Care Act.
The tax is only required of taxpayers who make a certain amount of money on an annual basis. This income amount varies depending on the filing status of a taxpayer. Those whose status is married filing separately have to pay the added tax if they earn $125,000 annually. Those who file single must pay the tax if they earn more than $200,000. Married couples filing jointly must pay if they earn at least $250,000. A head of household must pay if they earn at least $200,000.
The standard Medicare tax before this added tax varies depending on whether an individual is paid wages or self-employed. Those who are paid wages have to pay a standard Medicare tax of 1.45 percent. Employers are expected to automatically withhold the added tax on top of this amount from employees earning incomes above the minimum mentioned above. Those who are self-employed pay a standard Medicare tax of 2.9 percent.
Determining Who Has to Pay the Additional Medicare Tax
You need to determine if you have to pay for the added tax. As you have read above, you determine if you have to pay the tax according to your income. You also need to consider what your filing status is.
Your filing status is determined by your marital status.
It is also determined by whether you have any dependents.
If you make more than $200,000 and aren't married, you're definitely going to have to pay the tax. The only way you can make over $200,000 and not have to pay the tax is if you are married and your spouse makes $50,000 or less.
Methods For Avoiding the Additional Medicare Tax
In certain cases, it may be possible to make some slight changes so that you don't have to pay this tax. This is especially likely to be possible if you just barely earn enough to be liable. If you earn just over $200,000 as a single taxpayer, you may be able to slightly lower your taxable income. When you do this, you no longer have to pay this additional tax.
There are several types of account you can use for this:
One option is a flexible spending account. A flexible spending account is used to pay medical care costs. When you put money into such an account, you have less taxable income. If you can put enough of your income in this account to make your taxable earnings below the threshold for the added Medicare tax, you won't have to pay the tax. A flexible spending account is not the only type of account you can contribute to.
Perhaps you don't have a flexible spending account. Another type of health care expense account you can contribute to is a health savings account.
Otherwise, you can contribute money to your retirement. If you make a pre-tax deduction to a retirement account, you may be able to avoid the Additional Medicare Tax.
Figuring Out How to Calculate Your Additional Medicare Tax
At this point, you should be aware of whether you have to pay the tax or not. It's simple to figure this out according to your income. However, this is not the only issue you have to figure out. You also have to figure out how much you owe. Calculating your liabilities according to the rules for the Additional Medicare Tax is important. You may have to pay a penalty if you don't pay enough when you file your taxes. If you overpay, you should be sent a refund by the IRS. However, it might take some time for this refund to arrive.
Calculating liability according to income
The amount you have to pay for the tax is a percentage of your income. The percentage will be higher for you if you are self-employed. It's important to realize that you already have to pay Medicare tax even if the Additional Medicare Tax doesn't apply to you. The standard Medicare tax itself is always more than the added tax that some have to pay according to their income. If you have to pay the added tax, you need to make sure you pay both the standard tax as well as the Additional Medicare Tax.
You'll need to take a percentage of your income to calculate how much you owe for this tax. Whether you are paid wages or self-employed, the added tax will amount to 0.9 percent of your taxable income.
You can calculate your liability for this tax by multiplying the amount of your taxable income by 0.009. Then, you'll add this on to the amount you owe for your standard Medicare tax.
However, you should remember that your employer should already be withholding this amount if you are employed by a company as opposed to being self-employed.
The Rationale Behind the Additional Medicare Tax
You might want to learn about what the funds for this tax go toward. There are numerous expenses related to the Affordable Care Act that this added tax goes toward paying. You may already be aware of the fact that the Affordable Care Act covers added Medicare benefits. Therefore, the additional taxes help pay for these benefits.
The new tax helps to pay for prescription drugs for those enrolled in Medicare.
Also, the new tax helps to pay for certain vaccines and make them available for free to some patients.
Another thing the new tax helps pay for is preventive care. Medicare plans offer more free preventive care since the Affordable Care Act.
There are numerous screenings that Medicare pays for since the changes of the Affordable Care Act. These include screenings for conditions such as diabetes, heart disease, depression, and certain cancers.
You can see that many of these new benefits are important and life-savings. These new benefits are just a few of the ways that the Affordable Care Act has made the lives of Americans better.
Managing Your Tax Liability
Many taxpayers have felt frustrated by this added tax liability. No one enjoys learning that they have another tax to pay. Some taxpayers might even struggle to pay more in taxes. Perhaps you are short on funds in a particular year. Many of those with high incomes also have expensive lifestyles. If you have a lot of expenses, managing your tax payments could be a challenge. If this is the case, it's important to be creative with managing your tax burdens. You should use the resources available to you.
If you're looking for tax tips, you should take advantage of the resources available through Taxry. Taxry allows you to review various tax offers. You can use Taxry to find the right tax management software. If you're looking for a tax preparer, you can also use the site to find a tax preparation firm.
To Sum Up,
Paying any Additional Medicare Tax that you owe is important. If you fail to pay this tax, you could be subject to penalties. The next time you file your tax return, make sure that you've considered this possible tax liability. Although this tax may increase your tax liability, your income is fairly high if this tax applies to you. You will hopefully be able to pay this additional tax without much hardship.
One of the most important things you need to do for your finances is make sure that you calculate your taxes accurately. You don't want to deal with surprise tax liabilities. Owing more on your taxes than you expected can be very frustrating. Achieving strong finances is easiest when you know what's coming. Surprises make it harder to manage your budget.
Now that you understand the Additional Medicare Tax, you can enjoy greater peace of mind when you do your taxes. Stay on top of your taxes to meet all of your financial goals!
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