Implications of the Additional Medicare Tax

Adam Greene, CPA

Implications of the Additional Medicare Tax

Adam Greene, CPA, serves as an accountant with and partner in the firm of Greene & Company, LLP, in Melville, NY. As a CPA, Adam Greene focuses on a clientele primarily composed of professionals in the construction industry.

Implications of the Additional Medicare Tax

Because many construction companies operate as S-Corporations, also known as “pass-through” entities, certain implications of income tax law add complexity to these businesses' tax preparation. One example of this is the recently established Additional Medicare Tax, which requires all employees earning above a certain threshold to pay an additional 0.9 percent of these wages. The qualification total, currently set as $200,000 for single or head of household, encompasses primary salary as well as any additional income.

Implications of the Additional Medicare Tax

As a result, all partners in a construction partnership or company taxed as a partnership are now responsible for the 0.9 percent tax on all net taxable income that the company earns. This is not true of pass-through income from an S-Corporation, as these distributions are not classified as investment income. However, an S-corporation owner-employee may be liable to the tax if income from other sources exceeds the limit when combined.