Medicare will be a difficult challenge to the winner of this year's Presidential election. The number of Medicare recipients will be increasing as millions of baby boomers retire, and costs have increased as medical care has become much more expensive. Most experts agree that Medicare is unsustainable without raising taxes and/or reducing spending.
As a result of the Supreme Court's decision this year to uphold the 2010 Health Care Acts (aka “Obama Care”), Medicare taxes are scheduled to increase in 2013. Before the enactment of the Health Care Act, Social Security and Medicare taxes were imposed only on wages. However, beginning January 1, 2013, a new 3.8% Medicare tax (surtax) will be imposed on net investment income of high-income individuals, trusts and estates. Additionally, the existing Medicare payroll tax of 2.9% will be increased by 0.9% for some individuals.
The Federal Insurance Contributions Act (FICA) tax includes two separate taxes - the Social Security Tax and the Medicare tax. Different rates apply for each of these. Only the Social Security Tax has a wage base limit (i.e., $113,700 for 2013 - the maximum wage that is subject to the tax). The Medicare tax is the primary source of funding for Medicare's hospital insurance trust fund, which pays hospital bills for individuals age 65 and older or disabled. Under current law, wages are subject to a 2.9% Medicare tax. Workers and employers pay 1.45% each. Self-employed people pay both halves of the tax (but are allowed to deduct half of this amount for income tax purposes).
Beginning January 1, 2013, an additional 0.9% Medicare tax applies to an individual’s Medicare wages, and self-employment income that exceeds a threshold amount based on your filing status. Employers must withhold the 0.9% additional Medicare tax on your wages and self-employment income in excess of $200,000 for individuals and $250,000 for married couples filing jointly. Employee salary deferral contributions to retirement plans (401(k), 403(b), etc.) do not reduce income for the 0.9% additional Medicare tax.
President Obama is in favor of keeping the additional 0.9% tax while Governor Romney has indicated he wants to repeal the Health Care Act. Health care is playing a greater role in this election. Whoever wins the election, we wish them luck - they will need it when dealing with Medicare.
Article Highlights:
- Medicare taxes are scheduled to increase in 2013
- An additional 0.9% tax on wages and self-employment income over the threshold amounts ($200,000 for individuals; $250,000 for married filing jointly)
- Health care is playing a greater role in this election
1 comments:
It also has implications in the research and development tax credits for medical research firms and educational institutions.
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