medicare

Social Security and Medicare Amounts for 2015

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation! 

The annual inflation adjustments have also impacted the various Social Security amounts and thresholds for 2015.

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The Social Security wage base, for computing the Social Security tax (OASDI only), increases to $118,500 in 2015, up from $117,000 for 2014. There is no taxable earnings limit for Medicare (HI only) contributions. However, there is a 0.9% Medicare surtax that is imposed on wages and self-employment (SE) income in excess of the modified adjusted gross income (MAGI) threshold amounts of $250,000 for joint filers, $125,000 for married separate filers, and $200,000 for all other taxpayers. The MAGI thresholds are not adjusted for inflation. The surtax does not apply to the employer portion of the tax.

For Social Security beneficiaries under the full retirement age, the annual exempt amount increases to $15,720 in 2015, up from $15,480 in 2014. These beneficiaries will be subject to a $1 reduction in benefits for each $2 they earn in excess of $15,720 in 2015. However, in the year beneficiaries reach their full retirement age (FRA), earnings above a different annual exemption amount ($41,880 in 2015, up from $41,400 in 2014) are subject to $1 reduction in benefits for each $3 earned over this exempt amount. Social Security benefits are not reduced by earned income beginning with the month the beneficiary reaches FRA. But remember, Social Security benefits received may be subject to federal income tax.

The Social Security Administration estimates the average retired worker will receive $1,328 monthly in 2015. The average monthly benefit for an aged couple where both are receiving monthly benefits is $2,176. These amounts reflect a 1.7% cost of living adjustment (COLA). The maximum 2015 Social Security benefit for a worker retiring at FRA is $2,663 per month, up from $2,642 in 2014.

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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!

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Increased Medicare Payroll Tax

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The Medicare payroll tax is the primary source of financing for Medicare, which generally pays medical bills for individuals who are 65 or older or disabled. Wages paid through December 31, 2012, were subject to a 2.9% Medicare payroll tax. Workers and employers pay 1.45% each. Self-employed individuals pay both halves of the tax, but are allowed to deduct the employer-equivalent portion (i.e., 1.45%) for income tax purposes.

Westchester NY CPA Medicare Tips

Make sure you’re up to date on this year’s increased Medicare payroll taxes!

Unlike the social security payroll tax, which applies to earnings up to an annual ceiling ($113,700 for 2013), the Medicare tax is levied on all of an employee’s wages subject to FICA taxes.

Beginning in 2013, individuals who have wage and/or self-employment income exceeding $200,000 ($250,000 if married, filing a joint return; $125,000 if married, filing separately) are subject to an additional 0.9% Medicare tax (i.e., 2.35% total) on their earned income exceeding the applicable threshold. The employer portion of the Medicare tax is not increased. However, employers are required to withhold and remit the additional tax for any employee to whom it pays over $200,000. Companies are not responsible for determining whether a worker’s combined income with his or her spouse makes the employee subject to the additional tax. Therefore, many individuals (especially those who are married with each earning less than $200,000, but earning more than $250,000 combined) should adjust their federal income tax withholding (FITW) by submitting a new Form W-4 to the employer or make quarterly estimated tax payments to be sure they are not hit with an underpayment penalty when filing their income tax return each year.

Self-employed individuals who pay both halves of the Medicare tax (i.e., 2.9%) will pay a total Medicare tax of 3.8% on earnings above the thresholds. The additional 0.9% tax is not deductible for income tax purposes. Self-employed individuals should adjust their quarterly estimated income tax payments to account for this additional tax.

Married couples with combined incomes approaching $250,000 should keep tabs on their total earnings to avoid an unexpected tax bill when filing their individual income tax return. At this time, the threshold amounts ($200,000/$250,000) are not adjusted for inflation. Therefore, it is likely that increasingly more people will be subject to the higher payroll taxes in coming years.

Please contact our Westchester NY CPA firm for all inquiries and to receive your free personal finance consultation!

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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.