Wealth & Risk Management Blog

William Byrnes (Texas A&M) tax & compliance articles

Posts Tagged ‘Obama Care tax’

6 Tax Facts About the Additional Medicare Tax

Posted by William Byrnes on June 19, 2014


In Tax Tip 54, the IRS alerted taxpayers that if their income exceeds certain limits, then they may be liable for an Additional Medicare Tax.  6 Tax Tips Regarding the Additional Medicare Tax are:

1. The Additional Medicare Tax is 0.9%.  It applies to the amount of a taxpayer’s wages, self-employment income and railroad retirement (RRTA) compensation that is more than a “threshold” amount. The threshold amount that applies is based on your filing status.  If a taxpayer is married and file a joint return, then the taxpayer must combine both spouse’s wages, compensation, or self-employment income to determine if that income exceeds the “married filing jointly” threshold.

2. The threshold amounts are:

 Filing Status                   Threshold Amount
Married filing jointly           $250,000
Married filing separately   $125,000
Single                                         $200,000
Head of household               $200,000
Qualifying widow(er) with dependent child      $200,000

3. A taxpayer must combine all wages and all self-employment income to determine if the total income exceeds the threshold.  A taxpayer may not consider a loss from self-employment when calculating this additional medicare tax.  The taxpayer must compare RRTA compensation separately to the threshold.  See the instructions for Form 8959, Additional Medicare Tax, for examples.

4. Employers must withhold this tax from wages or compensation when paying a taxpayer more than $200,000 in a calendar year, without regard to filing status.  The employer does not combine the wages for married couples to determine whether to withhold Additional Medicare Tax.

5. A taxpayer may owe more tax than the amount withheld, depending on the filing status and other income. In that case, the taxpayer must make estimated tax payments /or request additional income tax withholding using Form W-4, Employee’s Withholding Allowance Certificate.  If a taxpayer has too little tax withheld, or did not pay enough estimated tax, the taxpayer may owe an estimated tax penalty. For more on this topic, see Publication 505, Tax Withholding and Estimated Tax.

6. File Form 8959 with the tax return if owing Additional Medicare Tax.  The taxpayer must also report any Additional Medicare Tax withheld by an employer on Form 8959.

IRS Examples:

How do individuals calculate Additional Medicare Tax if they have wages subject to Federal Insurance Contributions Act (FICA) tax and self-employment income subject to Self-Employment Contributions Act (SECA) tax?

Individuals with wages subject to FICA tax and self-employment income subject to SECA tax calculate their liabilities for Additional Medicare Tax in three steps:

Step 1. Calculate Additional Medicare Tax on any wages in excess of the applicable threshold for the filing status, without regard to whether any tax was withheld.

Step 2. Reduce the applicable threshold for the filing status by the total amount of Medicare wages received, but not below zero.

Step 3. Calculate Additional Medicare Tax on any self-employment income in excess of the reduced threshold.

Example 1. C, a single filer, has $130,000 in wages and $145,000 in self-employment income.

  1. C’s wages are not in excess of the $200,000 threshold for single filers, so C is not liable for Additional Medicare Tax on these wages.
  2. Before calculating the Additional Medicare Tax on self-employment income, the $200,000 threshold for single filers is reduced by C’s $130,000 in wages, resulting in a reduced self-employment income threshold of $70,000.
  3. C is liable to pay Additional Medicare Tax on $75,000 of self-employment income ($145,000 in self-employment income minus the reduced threshold of $70,000).

Example 2. D and E are married and file jointly. D has $150,000 in wages and E has $175,000 in self-employment income.

  1. D’s wages are not in excess of the $250,000 threshold for joint filers, so D and E are not liable for Additional Medicare Tax on D’s wages.
  2. Before calculating the Additional Medicare Tax on E’s self-employment income, the $250,000 threshold for joint filers is reduced by D’s $150,000 in wages resulting in a reduced self-employment income threshold of $100,000.
  3. D and E are liable to pay Additional Medicare Tax on $75,000 of self-employment income ($175,000 in self-employment income minus the reduced threshold of $100,000).

tax-facts-online_medium

Due to a number of recent changes in the law, taxpayers are currently facing many questions connected to important issues such as healthcare, home office use, capital gains, investments, and whether an individual is considered an employee or a contractor. Financial advisors are continually looking for updated tax information that can help them provide the right answers to the right people at the right time. This brand-new resource provides fast, clear, and authoritative answers to pressing questions, and it does so in the convenient, timesaving, Q&A format for which Tax Facts is famous.

Our brand-new Tax Facts title is exciting in many ways,” says Rick Kravitz, Vice President & Managing Director of Summit Professional Network’s Professional Publishing Division. “First of all, it fills a huge gap in the resources available to today’s advisors. Small business is a big market, and this book enables advisors to get up-and-running right away, with proven guidance that will help them serve their clients’ needs. Secondly, it addresses the biggest questions facing all taxpayers and provides absolutely reliable answers that help advisors solve today’s biggest problems with confidence.”

Robert Bloink, Esq., LL.M., and William H. Byrnes, Esq., LL.M., CWM®—are delivering real-life guidance based on decades of experience.  The authors’ knowledge and experience in tax law and practice provides the expert guidance for National Underwriter to once again deliver a valuable resource for the financial advising community,” added Rick Kravitz.

Anyone interested can try Tax Facts on Individuals & Small Business, risk-free for 30 days, with a 100% guarantee of complete satisfaction.  For more information, please go to www.nationalunderwriter.com/TaxFactsIndividuals or call 1-800-543-0874.

Posted in Taxation | Tagged: , , , | 1 Comment »

Court Approves New Planning Techniques for Investment Income Tax Trap for Trusts

Posted by William Byrnes on April 22, 2014


The Tax Court recently handed down a decision that could prove to be just the break that trusts participating in business activities need to escape liability for the new 3.8 percent tax on investment-type income (the NIIT) enacted with the ACA / ObamaCare.

Many trusts with business-related income are finally feeling the sting of the tax, which applied to all trust investment income for trusts with income in excess of a low $11,950 in 2013 ($12,150 for 2014).* The decision paves the way for new planning techniques in 2014 and beyond …

Read about the new planning techniques for the new investment tax: https://www.lifehealthpro.com/2014/04/21/court-untangles-investment-income-tax-trap-for-tru

Also see previous planning analysis at https://profwilliambyrnes.com/2014/01/02/irs-gives-high-income-taxpayers-a-break-on-new-3-8-tax/

See also: 10 things to know about how investments are taxed

* Estates and trusts are subject to the Net Investment Income Tax if they have undistributed Net Investment Income and also have adjusted gross income over the dollar amount at which the highest tax bracket for an estate or trust begins for such taxable year under section 1(e) (for tax year 2013, this threshold amount is $11,950). For 2014, the threshold amount is $12,150.

<— Subscribe to this blog on the left side menu for unique weekly tax planning articles and tax facts tips

 

 

 

Posted in Retirement Planning, Taxation, Wealth Management | Tagged: , , , , , | Leave a Comment »

Health Insurance Providers Fee (or Tax or Penalty, call it what you will) – IRS guidance issued yesterday…

Posted by William Byrnes on November 27, 2013


and it has finally come to pass time … the new health care penalty, tax, fee – whatever it is, to be calculated for businesses.   Perhaps not the best timing considering the rocky roll out.  On the other hand, better to get the bad news 11 months before the next election, when it can be forgotten by the time mail in ballots are sent out.

Notice 2013-76 provides guidance on the health insurance providers fee related to (1) the time and manner for submitting Form 8963, “Report of Health Insurance Provider Information,” (2) the time and manner for notifying covered entities of their preliminary fee calculation, (3) the time and manner for submitting a corrected Form 8963 for the error correction process, and (4) the time for notifying covered entities of their final fee calculation.

For each fee year, the IRS will make a preliminary fee calculation for each covered entity and will notify each covered entity.  The notification will include (1) the covered entity’s allocated fee; (2) the covered entity’s net premiums written for health insurance of United States health risks; (3) the covered entity’s net premiums written for health insurance of United States health risks taken into account after application of § 57.4(a)(4); (4) the aggregate net premiums written for health insurance of United States health risks taken into
account for all covered entities; and (5) instructions for how to submit a corrected Form 8963 to correct any errors through the error correction process.

The information reported on each Form 8963 will be open for public inspection.  This aspect will be very interesting as various groups pull and then post business’ 8963s.

Posted in Compliance | Tagged: , , , , , , , , , , | 1 Comment »

Net unrealized appreciation tax break: Still a tax break in 2013?

Posted by William Byrnes on September 4, 2013


The tax break provided for net unrealized appreciation (NUA) on 401(k) account distributions once provided a powerful tax savings strategy for clients with large 401(k) balances — allowing some clients to reduce their taxes on these retirement funds by as much as 20 percent.

Today, as high-net-worth clients are increasingly seeking strategies to help minimize their tax burdens in light of higher 2013 tax rates, the NUA strategy may have become more complicated than ever.   Read the full analysis of William Byrnes & Robert Bloink at > Life Health Pro <

Posted in Retirement Planning, Taxation | Tagged: , , , , , , , , | Leave a Comment »

 
%d bloggers like this: