There are two taxes associated with the Affordable Care Act that all individuals and families should be aware of. The first is for individuals earning $200,000/year and the second is for married couples or joint filers earning a combined income of $250,000/year.
These taxes are known as a “Medicare surtax” that applies to earned income only. Thus, it will not apply to income received from investments. Typically, 1.45% is deducted from each paycheck to pay for Medicare. However, this tax increases that value by 0.9% but only to people earning over $200,000 or more. Once your cummulative income reaches $200,000, your employer will implement the surtax and your Medicare surtax rate will increase to 2.35% for the rest of the year.
Harris Abrams, a senior analyst with Thomson-Reuters, notes that the term wage is not limited to your gross income. “Fringe benefits, tips, third-party sick pay, the cost of group-term life insurance and amounts deferred under a nonqualified deferred compensation plan also have to be added in,” Gail Buckner – Fox Business.
*Important: Make sure you are not overpaying or underpaying.
This tax is applied by your employer when you hit $200,000 in income. However, if you’re married this tax does not apply to you until you reach $250,000 in combined income.
If you are married and your spouse is unemployed or earns under $50,000 then you will should not be taxed even if you make $200,000.
However, if you are married and you make under $200,000 and your spouse makes under $200,000 but your combined income is over $250,000, you are subject to the tax.
It is imperative to keep track of your income as well as your combined income (if married) so that you can estimate how much your taxes will be.
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