Don’t Forget The Double Payroll Tax Hit!
- By: Paul Neiffer
- January 10th, 2013
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Many farmers are aware that the FICA rate for employees (including their employee portion, if self-employed) has gone back to the old 6.2% which is up 2% from the temporary reduced 4.2% rate for 2011 and 2012. This increase applies on wages as paid and will also apply on any self-employment income paid with the tax return.
The other tax that may get lost in the discussion is the new Medicare surtax of .9% on earned income in excess of $200,000 for single taxpayers and $250,000 if married filing joint. If the farmer is employed outside of the farm or earns a wage from their corporation, the employer will be required to start withholding this extra tax once the $200,000 level is reached, even if the employee is married. If the spouse does not work, then the couple may be entitled to a refund when they file their personal tax return if their total wages are less than $250,000.
If the farmer is self-employed, then this extra tax will be owed if they exceed the threshold amount.
This is another tax that has a marriage “penalty” built into it. For example, two single taxpayers earning $200,000 each would owe no additional Medicare tax, but if they were married, they would owe the tax on $150,000 of earnings or $1,350.
Paul Neiffer, CPA