Healthcare

Additional 0.9% Medicare Tax

Westchester accountant Paul Herman of Herman & Company CPA’s has all the answers to your personal finance questions! Individuals must pay an additional 0.9% Medicare tax on earned income above certain thresholds. The employee portion of the Medicare tax is increased from 1.45% to 2.35% on wages received in a calendar year in excess of $200,000 ($250,000 for married couples filing jointly; $125,000 for married filing separately). Healthcare tax update from westchester ny accountantEmployers must withhold and remit the increased employee portion of the Medicare tax for each employee whose wages for Medicare tax purposes from the employer are greater than $200,000.

There is no employer match for this additional Medicare tax. Therefore, the employer’s Medicare tax rate continues to be 1.45% on all Medicare wages. An employee is responsible for paying any of the additional 0.9% Medicare tax that is not withheld by an employer. The additional tax will be reported on the individual’s federal income tax return.

Because the additional 0.9% Medicare tax applies at different income levels depending on the employee’s marital and filing status, some employees may have the additional Medicare tax withheld when it will not apply to them (e.g., the employee earns more than $200,000, is married, filing jointly, and total annual compensation for both spouses is $250,000 or less). In such a situation, the additional tax will be treated as additional income tax withholding that is credited against the total tax liability shown on the individual’s income tax return.

Alternatively, an individual’s wages may not be greater than $200,000, but when combined with a spouse’s wages, total annual wages exceed the $250,000 threshold. When a portion of an individual’s wages will be subject to the additional tax, but earnings from a particular employer do not exceed the $200,000 threshold for withholding of the tax by the employer, the employee is responsible for calculating and paying the additional 0.9% Medicare tax. The employee cannot request that the additional 0.9% Medicare tax be withheld from wages that are under the $200,000 threshold. However, he or she can make quarterly estimated tax payments or submit a new Form W-4 requesting additional income tax withholding that can offset the additional Medicare tax calculated and reported on the employee’s personal income tax return.

For self-employed individuals, the effect of the new additional 0.9% Medicare tax is in the form of a higher self-employment (SE) tax. The maximum rate for the Medicare tax component of the SE tax is 3.8% (2.9% + 0.9%). Self-employed individuals should include this additional tax when calculating estimated tax payments due for the year. Any tax not paid during the year (either through federal income tax withholding from an employer or estimated tax payments) is subject to an underpayment penalty.

The additional 0.9% Medicare tax is not deductible for income tax purposes as part of the SE tax deduction. Also, it is not taken into account in calculating the deduction used for determining the amount of income subject to SE taxes.

Individual is responsible for paying the additional 0.9% Medicare tax

Josh and Anna are married. Josh’s salary is $180,000, and Anna’s wages are $150,000. Assume they have no other wage or investment income. Their total combined wage income is $330,000 ($180,000 + $150,000). Since this amount is over the $250,000 threshold, they owe the additional 0.9% Medicare tax on $80,000 ($330,000 -$250,000). The additional tax due is $720 ($80,000 × .009). Neither Josh’s nor Anna’s employer is liable for withholding and remitting the additional tax because neither of them met the $200,000 wage threshold. Either Josh or Anna (or both) can submit a new Form W-4 to their employer that will result in additional income tax withholding to ensure the $720 is properly paid during the year. Alternatively, they could make quarterly estimated tax payments. If the amount is not paid until their federal income tax return is filed, they may be responsible for the estimated tax penalty on any underpayment amount (whether the underpayment is actually income taxes or the additional Medicare taxes).

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions about these provisions or any other tax compliance/planning issues, and to receive your free personal finance consultation!

Herman and Company CPA’s proudly serves Rye Brook NY, Larchmont NY, Scarsdale NY, Purchase NY, Pound Ridge NY, Mamaroneck NY, Stamford CT and beyond.

 Photo Credit: Life Mental Health via Photopin cc

Long-Term Care Insurance FAQ

Scarsdale CPA Paul Herman has all the answers to your personal finance questions!
▼ Is it worthwhile for me to purchase long term insurance?

There are good arguments for and against purchasing this type of insurance, and every person’s situation will differ.

Long-term insurance information from scarsdale accountant

With life expectancy rates on the rise, purchasing long-term insurance makes sense for many Americans.

Even though Long-Term Care Insurance can be costly up front, it could save you from paying much more in the long run. The home care coverage that is included in the policies could possibly allow you to live independently for more time before having to switch to assisted living. Since the price of this service increases with time, if you choose to purchase it, it is much better to do so earlier than later.

If this policy is too expensive for you, it may be a better idea to apply for Medicaid. Some of these policies may not give you enough money to stay at home and will force you into assisted living if you don’t have sufficient funds to support yourself and your personal help.

▼ What features should I look for in a Long-Term Care Insurance Policy?

The four main factors that you will want to take into consideration when looking for a LTCI policy are: flexibility, eligibility, inflation, and duration.

Check to make sure that the flexibility of your policy allows for personal help so you can stay in your home for as long as possible before assisted living is absolutely necessary. Some of the policies will allow you to be paid cash for you to distribute as you please.

Make sure that your policy will pay for more than just what is medically necessary. These policies may not cover all of your needs.

Make sure that you are protected against inflation; you can place a clause into the policy that your payout adjusts 5% annually to cover you against raising prices.

Remember that a policy which lasts 5 years is probably more than you would need. A policy of two to three years will generally be enough.

▼ Do I really need Long-Term Care Insurance?

Over 40% of the American population will eventually need to be in a nursing home or an assisted living facility. Your chances of needing this depend on a number of health factors.

▼ Is it worthwhile for me to purchase long term insurance?

There are good arguments for and against purchasing this type of insurance, and every person’s situation will differ.

Even though Long-Term Care Insurance can be costly up front, it could save you from paying much more in the long run. The home care coverage that is included in the policies could possibly allow you to live independently for more time before having to switch to assisted living. Since the price of this service increases with time, if you choose to purchase it, it is much better to do so earlier than later.

If this policy is too expensive for you, it may be a better idea to apply for Medicaid. Some of these policies may not give you enough money to stay at home and will force you into assisted living if you don’t have sufficient funds to support yourself and your personal help.

▼ What is the elimination period?

The elimination period is the time you will need to wait from the time you are ready to get the long term insurance to the time in which you will actually receive it. This period of time is negotiable in the terms of the contract and the longer this time period is, the cheaper the premium.

▼ How are Long Term Insurance Companies rated?

These companies are rated in the same manner in which stocks and bonds are rated, through Standard and Poor’s.

▼ How can I ensure that I have adequate coverage?

  • Make sure that your policy can be renewed every year
  • Know that if you are disabled, yet able to work part time, you will still receive coverage
  • Choose a waiting period (elimination period) of three to six months, to keep the premium down, and then set aside a nest egg for that time.
  • Make sure you will be eligible to receive coverage until the age of 65, when your retirements will kick in.
  • Make sure that the policy will pay if you cannot perform the work in your field.

The elimination period is the time you will need to wait from the time you are ready to get the long term insurance to the time in which you will actually receive it. This period of time is negotiable in the terms of the contract and the longer this time period is, the cheaper the premium.

Scarsdale tax preparers at Herman & Company CPA’s are here to help you with all your personal finance needs. Please contact us for all inquiries and to receive your free personal finance consultation!

Herman and Company CPA’s proudly serves Mamaroneck NY, Scarsdale NY, Bedford NY, Katonah NY, Purchase NY, Rye NY and beyond.

Photo Credit: adwriter via Photopin cc

2014 HSA Amounts

By Paul Herman

Scarsdale tax preparers at Herman & Company CPA’s have all the answers to your personal finance questions!

Health savings accounts (HSAs) were created as a tax-favored framework to provide health care benefits mainly for small business owners, the self-employed, and employees of small- to medium-sized companies who do not have access to health insurance. Health Savings Account advice from Scarsdale CPAThe tax benefits of HSAs are quite substantial. Eligible individuals can make tax-deductible (as an adjustment to AGI) contributions to HSA accounts. Funds in the account may be invested (somewhat like an IRA), so there is opportunity for growth. The earnings inside the HSA are free from federal income tax, and funds withdrawn to pay eligible health care costs are tax free.

An HSA is a tax-exempt trust or custodial account established exclusively for paying qualified medical expenses of the participant who, for the months for which contributions are made to an HSA, is covered under a high-deductible health plan. Consequently, an HSA is not insurance; it is an account that must be opened with a bank, brokerage firm, or other provider (i.e., insurance company). It is therefore different from a flexible spending account in that it involves an outside provider serving as a custodian or trustee.

The 2014 inflation-adjusted deduction for individual self-only coverage under a high-deductible plan is limited to $3,300, while the comparable amount for family coverage is $6,550. This is an increase of 1.5% and 1.6%, respectively, from 2013. For 2014, a high-deductible health plan is defined as a health plan with an annual deductible that is not less than $1,250 for self-only coverage and $2,500 for family coverage, and the annual out-of-pocket expenses (including deductibles and copayments, but not premiums) must not exceed $6,350 for self-only coverage or $12,700 for family coverage.

Scarsdale CPA Paul Herman is here to help you with all your personal finance needs. Please contact us for all inquiries and to receive your free personal finance consultation!

Herman and Company CPA’s proudly serves Scarsdale NY, Larchmont NY, Mamaroneck NY, Purchase NY, Rye NY, White Plains NY and beyond.

Photo Credit: Sal Falko via Photopin cc

Any U.S. tax advice contained in the body of this website is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.