← FarmCPA Home

Get Ready For The New Medicare Tax Increase on Earned Income

By: | Trackback URL | No Comments

November 4th, 2012

As part Obama-Care put into effect in 2010 is a provision to increase the employee portion of the Medicare tax from the current 1.45% by .9% to a total rate of 2.35%.  This new rate only applies on the amount of earned income in excess of $200,000 for single taxpayers and $250,000 for married couples (another example of the “marriage” penalty).

For farmers, earned income applies to any net farm income reported on Schedule F plus any self-employment earnings received as a partner in a partnership (or LLC taxed as a partnership).  In addition, the tax applies to wages the farmer earns from his corporation if any plus wages earned off-farm by him and his spouse.

The final calculation is done on the tax return and if the total exceeds the base amount listed previously, the excess is subject to the new Medicare surtax.

Example #1

Farmer Joe earns Schedule F income of $295,000 for 2013 and his spouse earns $120,000 working in town.  Their combined income is $415,000.  All of this income is subject to the regular employee Medicare rate of 1.45% or 6,017.50.  Additional tax of $1,485 is owed on the $165,000 in excess of the base amount.

Example # 2

Jane earns $250,000 working in town.  Her employer is required to withhold an extra $450 for the Medicare surtax on the $50,000 in excess of the $200,000 single level (employers withhold based on single floor even if the employee is married).  Farmer Joe has a break even year farming and they are entitled to a refund of the $450 withheld from Jane’s wages since combined earned income is exactly $250,000 the married limit.

Note, the employer portion (including the farmer’s self employed portion) remains at 1.45% on all of the earned income.  The Surtax only applies to the employee.  However, if the employer does not withhold the required Medicare surtax from the employee, they are subject to the liability for the tax.

Paul Neiffer, CPA

Paul Neiffer

Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a partner with CliftonLarsonAllen in Yakima, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. In fact, Paul drives combine each summer for his cousins and that is what he considers a vacation. Leave a comment for Paul. If you would like to leave a comment for Paul, follow the link above, however, please make sure to include your email address so that he can reply to your comment (your email address will not automatically show up).

More Posts - Website

Follow Me:
Twitter

← FarmCPA Home

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>

Subscribe to this blog by:

Previous Posts

Events

View upcoming speaking engagements and other networking events for Paul Neiffer and CliftonLarsonAllen’s agribusiness team.

See All

  • Twitter Feed

    If you have higher yields or go all corn for the 2014 crop year consider ARC-IC. It may more than offset base acre penalty 21 hours ago

    Presenting two farm bill seminars today. Dayton and Walla Walla 2 days ago

    Netflix down $110 in after hours trading. Sign of momentum stocks going flat? 1 week ago

    Getting ready to go to LA to defend my son and I APU Alumni golf tournament victory last year. I may have to carry him again 1 week ago

    Everybody worried about bubble in land market. They should worry about stock market bubble 1 week ago

    77 degrees on October 8. Perfect. 2 weeks ago

    Somehow IRS listed several counties in Iowa as drought stricken. Hard to believe after all the rain this year 3 weeks ago

    Just saw a bighorn sheep eating grass in the bank next to the freeway. Less than 30' from my car. 1 month ago

    After 82 days in a rental car my wife has talked me into a cruise. We leave Thursday for Miami. Can't wait 1 month ago

    Will final ear weights set a new record. If so final corn yield will be going higher (unless we get an early hard freeze) 1 month ago