What Is Additional Medicare Tax?

What Is Additional Medicare Tax?

On top of the 1.45% Medicare tax that is imposed on wages, some high-income earners are subject to an additional 0.9% Medicare tax on their wages.

Additional Medicare tax is in addition to, and separate from, the regular 1.45% Medicare tax rate. Additional Medicare tax is only imposed on the employee and is not paid by the employer. All wages that are subject to Medicare tax are subject to the additional 0.9% Medicare tax. The additional Medicare tax is not calculated on tips or on other non-cash wages and compensation.

The 0.9% rate has been in effect since 2013 and is on top of the regular 1.45% Medicare tax rate. The additional Medicare tax rate only applies to wages and other compensation over a certain threshold, and does not apply to investment income. The tax is also not imposed on an individual's wages and compensation up to the social security maximum ($128,700 in 2016).

Workers should receive a Form W-2 with the amount of additional Medicare tax that was withheld from their pay. This information is for the employee's own records and to help them prepare their tax return.

There is no employer match for additional Medicare tax.

applicable federal rate

The applicable federal rate is a rate set each quarter by the IRS for use in calculating the interest due on certain tax payments.

The AFR is used to calculate interest due on a number of types of payments that are not exact multiples of a month. It is also used to calculate interest on underpayments and overpayments of tax, and in the case of estate tax, gift tax, and generation-skipping transfer (GST) tax, the interest rate is the highest AFR in effect during the period in which the underpayment or overpayment arose.

The AFR is also used to calculate interest due on the portion of a corporate overpayment of tax that is refunded to shareholders.

For more information about the applicable federal rate, visit our page on the AFR.

archer medical savings account (msa)

An Archer MSA is a tax-exempt trust or custodial account that is established exclusively for paying the qualified medical expenses of the account holder, their spouse, and any dependents.

A medical expense can be a payment for medical care as defined in the Internal Revenue Code, such as payments for medical services, prescription drugs, doctor fees, and many others. It can also include insurance premiums for health-care coverage. Qualified medical expenses can also include amounts paid for qualified long-term care insurance contracts and health-care continuation coverage (described in section 9832(c) of the Internal Revenue Code).

Amounts contributed to an Archer MSA cannot be deducted from gross income.

Contributions to an Archer MSA are not subject to federal income tax withholding or social security or Medicare taxes. Contributions to an Archer MSA are not deductible from gross income for federal income tax purposes.

Contributions can be made to an Archer MSA for a person who was an eligible individual during the entire period of the plan year in which the contribution is made. However, an Archer MSA can be established only for the benefit of an eligible individual who had attained the age of 65 before the close of the plan year.

Once an Archer MSA is established, the account holder (or their employer, if the account holder chooses to establish what is known as a “SIMPLE MSA”) can contribute to it in any given year. The contribution amount in any given year cannot be more than the Archer MSA's annual deductible.

The IRS has set a limit on the amount that can be contributed to an Archer MSA for the tax year. For the 2015 tax year, the annual contribution limit is $3,350 for self-only coverage and $6,650 for family coverage. The annual contribution limit is indexed for increases in the cost of living.

Contributions made to an Archer MSA are not subject to the 10% penalty for early withdrawals. However, any amounts that are distributed from an Archer MSA that are not used to pay for qualified medical expenses are subject to federal income tax plus a 10% penalty.

asset

An asset is anything of value owned or controlled by a person.

For example, cash, real estate and collectibles are all considered assets. However, personal property, such as clothing, a car and jewelry are considered personal property rather than assets.

Assets are also referred to as property.

assistance unit

The assistance unit is the basic unit of eligibility for the LIHEAP program. It is defined by the IRS as “any individual or group of individuals who are required to live together in a single household and are either members of a family defined in IRC section 152 (relating to definitions), or unrelated individuals living as a single housekeeping unit, or two or more individuals living together who are not related to one another, but who are living as a single housekeeping unit, and who customarily purchase and prepare meals together.”

assignee

An assignee is a person to whom an assignment of wages has been made.

assignment of wages

An assignment of wages is a written authorization by an employee giving an entity or its representative the authority to collect the employee's wages for payment to the assignee.

assignment statement

An assignment statement is a written authorization by an employee giving an entity or its representative the authority to collect the employee's wages for payment to the assignee.

When an entity is required to make a wage payment to an employee, the entity can request a written assignment of wages from the employee. The entity is not required to accept a written assignment of wages from the employee, but if the entity does accept a written assignment of wages, it cannot require the employee to make any payments to the

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