How the Medicare Tax Rate Changed Between 2013 and 2019
The Affordable Care Act of 2010 meant a Medicare surtax went into effect on January 1, 2013. This surtax increased the tax rate from 2.9% to 3.8%.
Almost everyone who works in the United States experiences the 2.9% Medicare tax in one way or another. This is a flat tax across all income brackets and there is no limit to the number of wages that can be subjected to the Medicare tax.
If you’re employed by a business, then you’re taxed on wages and those who are self-employed are taxed on business or farming income. Beginning in 2013, and still accurate for 2019, this Medicare tax rate increase both wage and investment income for those in a higher-income bracket.
The threshold annual compensation amount that will trigger the additional Medicare tax is:
- $250,000 for married taxpayers who file jointly
- $125,000 for married taxpayers who file separately
- $200,000 for single and all other taxpayers
There can be additional Medicare tax withholding that applies to wage and self-employment income in excess of the thresholds in a calendar year.
This added tax will raise the wage earners Medicare portion of FICA on compensation above the threshold amounts of 2.35 percent; the employer-paid portion of the Medicare tax on these amounts remains at 1.45 percent.
This additional Medicare tax shouldn’t be confused with the alternative minimum tax on high incomes, which doesn’t involve mandatory payroll withholding. If you have questions, the IRS webpage has answers for the Additional Medicare Tax.
How the Medicare Tax Rate has changed between 2013 and 2019
The 3.9% tax rate impacts high-income earners, who are responsible for paying the additional 0.9% tax out of their wages. The income threshold is $200,000 for individuals, $250,000 for couples who file together and $125,000 for spouses filing separately.
If an individual filer makes $250,000 a year, they will pay the 1.45% Medicare tax on the first $200,000 and the 2.35% (1.45% plus additional 0.9% tax) on the remaining $50,000.
If a couple each earn $150,000 and they file separately, they will each be responsible for only the 1.45% Medicare tax on their wages.
There is additional Medicare Tax withholding that applies only to employee compensation in excess of these thresholds in a calendar year. These thresholds are not adjusted with inflation, and they apply to more people each year.
Federal Withholding: Form W-4
Individuals were notified to complete or amend Form W-4 “Employee’s Withholding Allowance Certificate” if they filed “status exemption” allowances, or if your exempt status has changed since your last W-4 was filed.
If you claimed exemption from withholding tax on your year 2017 Form W-4, you must file a new W-4 for the year 2018 no later than February 16, 2018, to continue to claim the exemption in 2018. If you no longer claim exempt status, you must file a new W-4 form.
When filing a state Form DE-4, state withholding depends on your federal W-4. You might be able to elect different federal and state exemption levels or claim state personal estimate withholding allowances by filing both forms. You need to complete print, sign and submit your form to the Payroll Department.
Advance Earned Income Credit (AEIC)
The AEIC has been eliminated because of recent changes to the tax laws, and Form W-5 discontinued January 1, 2011. Eligible employees may continue to file for the earned income credit when they complete their individual tax returns. Information for claiming the credit is available in the IRS Notice 797.
Social Security Changes for 2019
Social Security and Supplemental Security Income benefits more than 67 million Americans, and it will increase by 2.8 percent in 2019. This is the largest increase in seven years.
The increased payments will benefit more than 8 million SSI beneficiaries beginning on December 31, 2018. The Social Security Act ties the annual cost-of-living adjustment to the increase in the Consumer Price Index.
The maximum taxable amount subject to Social Security tax will in
crease from $128,000 to $132,900. The SSA based this change on the increase in average wages. This change affects only the Social Security portion of the tax. The Medicare portion continues to have no upper limit.
The tax rate itself is unchanged; 7.65 percent each for employees and employers, and 15.30 percent for self-employed. There are other changes as well, such as the disability threshold, which is available in an SSA Fact Sheet.
This year for the first time most people who receive Social Security payments will be able to view their COLA notice online through there My Social Security account. You can create or access your account online here.
For Social Security beneficiaries receiving Medicare, the SSA can’t compute the new benefit amounts until after the Medicare premium amounts for 2019 are announced.
Final 2019 benefits will be communicated to beneficiaries in December through the mailed COLA notice and the My Social Security Message Center.