Under the Patient Protection and Affordable Care Act, two changes will impact employees.  The first is a change to the Medicare tax rate, which will increase 0.9% (for employee withholding only) - from 1.45% to 2.35% - on wages paid over $200,000, effective for taxable years beginning January 1, 2013.  Second, the Affordable Care Act requires employers to report the cost of employer-provided healthcare coverage on Form W-2 beginning with tax year 2012.  

Highlights of Additional Medicare Tax Beginning Calendar Year 2013

- The statute requires the University to withhold additional Medicare tax on wages or compensation it pays to an employee in excess of $200,000 in a calendar year. Any discrepancies between the amount withheld and the amount of the employee's actual liability for the additional Medicare tax will be reconciled on the individual's income tax return (Form 1040).

- The University is required to begin withholding additional Medicare tax in the pay period in which it pays wages in excess of $200,000 to an employee. It may not withhold the additional Medicare tax before an employee's wages exceed the threshold.

- An individual is liable for Additional Medicare Tax if the individual's wages or other compensation (together with that of his or her spouse if filing a joint return) exceed the threshold amount for the individual's filing status:

Filing Status: Threshold Amount
Married filing jointly: $250,000
Married filing separately: $125,000
Single: $200,000
Head of household (with qualifying person): $200,000
Qualifying widow(er) with dependent child: $200,000

- An employee who anticipates liability for the additional Medicare tax may request additional income tax withholding on Form W-4. Use this link to access the appropriate form: (https://nessie.uihr.uillinois.edu/cf/comp/index.cfm?Item_ID=1056).This statement is provided for information purposes only and is not intended to constitute individual tax advice.  Employees and students should consult with their individual tax advisor to assist with calculating their withholdings.

- There are no special rules for nonresident aliens for purposes of this provision. Wages earned by such individuals that are subject to Medicare tax will be subject to Additional Medicare Tax withholding if paid in excess of the $200,000 withholding threshold.

Highlights of Healthcare Coverage Reporting on 2012 Tax Form W-2  

- The IRS emphasizes that this new reporting is for information purposes only -- to inform employees of the cost of their health coverage -- and does not cause excludable employer-provided health coverage to become taxable. Employer-provided health coverage continues to be excludable from an employee's income and is not taxable.

- Applicable employer-sponsored coverage means, with respect to any employee, coverage under any CMS group health plan made available to the employee by an employer that is excludable from the employee's gross income, or would be so excludable if it were employer-provided coverage.  This means that coverage paid for by employees, directly to CMS, on an after-tax basis (for example, employees on leave) is reportable on the W-2.

- The reportable cost on the Form W-2 (in box 12 using code DD) generally includes both the portion of the cost paid by the employer and the portion of the cost paid by the employee, regardless of whether the employee paid for that cost through pre-tax or after-tax contributions.

- The cost of a separate Dental and/or Vision plan is not included in the reportable cost of healthcare on the W-2.  

Questions regarding the new changes can be addressed to UPB Customer Service at payinq@uillinois.edu or by calling one of these offices:  UIUC 217-265-6363, UIC 312-996-7200, UIS 217-206-7211.