Code Section 1401

Code Section	Effective Date	Name of Act	Name of Provision	10yr Revenue Estimate ($millions)
1401 and 3101	12/31/2012	Patient Protection and Affordable Care Act	Additional Hospital Insurance Tax on High Income Taxpayers	86,800

Additional Hospital Insurance Tax on High Income Taxpayers

Explanation of Provision

Additional HI tax on employee portion of HI tax

Calculation of additional tax
The employee portion of the HI tax is increased by an additional tax of 0.9 percent on wages ⁹²⁸ received in excess of the threshold amount. However, unlike the general 1.45 percent HI tax on wages, this additional tax is on the combined wages of the employee and the employee’s spouse, in the case of a joint return. The threshold amount is $250,000 in the case of a joint return or surviving spouse, $125,000 in the case of a married individual filing a separate return, and $200,000 in any other case.

Liability for the additional HI tax on wages
As under present law, the employer is required to withhold the additional HI tax on wages but is liable for the tax if the employer fails to withhold the amount of the tax from wages, or collect the tax from the employee if the employer fails to withhold. However, in determining the employer’s requirement to withhold and liability for the tax, only wages that the employee receives from the employer in excess of $200,000 for a year are taken into account and the employer must disregard the amount of wages received by the employee’s spouse. Thus, the employer is only required to withhold on wages in excess of $200,000 for the year, even though the tax may apply to a portion of the employee’s wages at or below $200,000, if the employee’s spouse also has wages for the year, they are filing a joint return, and their total combined wages for the year exceed $250,000.

For example, if a taxpayer’s spouse has wages in excess of $250,000 and the taxpayer has wages of $100,000, the employer of the taxpayer is not required to withhold any portion of the additional tax, even though the combined wages of the taxpayer and the taxpayer’s spouse are over the $250,000 threshold. In this instance, the employer of the taxpayer’s spouse is obligated to withhold the additional 0.9-percent HI tax with respect to the $50,000 above the threshold with respect to the wages of $250,000 for the taxpayer’s spouse.

In contrast to the employee portion of the general HI tax of 1.45 percent of wages for which the employee generally has no direct liability to the IRS to pay the tax, the employee is also liable for this additional 0.9-percent HI tax to the extent the tax is not withheld by the employer. The amount of this tax not withheld by an employer must also be taken into account in determining a taxpayer’s liability for estimated tax.

Additional HI for self-employed individuals

This same additional HI tax applies to the HI portion of SECA tax on self-employment income in excess of the threshold amount. Thus, an additional tax of 0.9 percent is imposed on every self-employed
individual on self-employment income ⁹²⁹ in excess of the threshold amount.

As in the case of the additional HI tax on wages, the threshold amount for the additional SECA HI tax is $250,000 in the case of a joint return or surviving spouse, $125,000 in the case of a married individual filing a separate return, and $200,000 in any other case. The threshold amount is reduced (but not below zero) by the amount of wages taken into account in determining the FICA tax with respect to the taxpayer. No deduction is allowed under section 164(f) for the additional SECA tax, and the deduction under 1402(a)(12) is determined without regard to the additional SECA tax rate.

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⁹²⁸ Sec. 3121(a).
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⁹²⁹ Sec. 1402(b).
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