Medicare tax for high earners

[K2retire]

Integrated formulas are supposed to make up for the lack of employer contributions on the higher earnings of those who earn more than the taxable wage base. Now that some of that group will be paying a higher rate of tax for their Medicare premiums, will anything about Integrated formulas be adjusted?

[Bird]

No, as far as I know. Integration was permitted on the part of SS (5.7%) that went to retirement, so there was a certain logic to it. The medicare tax was carved out, so changes to it don't affect the retirement contribution rate and probably shouldn't affect what is now called Permitted Disparity.

[Tom Poje]

see 1.401(l)-b(2)

historically in 1987 the rate was 5.7%

in 1988 it went up to 6.05%, and at that time, the regulations tied directly to that rate, and so, for one year, in a DC plan you could integrate at 6.05%!

in 1989 the medicare rate remained at 6.05%, but the regs were changed back to 5.7% then the Commissioner would publish a new rate (I guess as he deems fit...)

in 1990 the rate went to 6.2% and has been there since. The Commissioner has made no changes.

[K2retire]

Thanks for the history Tom. Having only been in this business for 15 years, I wasn't sure if it had ever changed.

[david rigby]

"Social Security" is really multiple programs. OASI (old age security insurance) has morphed into OASDHI (now including Disability and Health).

[K2retire]

Related question: for self employed individuals do you use the additional Medicare tax in the deduction for 1/2 of the SE tax?

[masteff]

This document in general but especially the 4th page, item C.7 seems to be your answer. http://www.asppa.org/Main-Menu/confswebcasts/webcasts/archived/061510/docs/Self-Employed-Income-Determination.aspx But it's dated in 2007 so you'll want to make a quick review to confirm nothing has changed.

EDIT: So using the cites in that document, IRS Code Section 164(f) says "(other than the taxes imposed by section 1401 (b)(2))", which is the additional medicare tax. So SE tax does not include the extra medicare tax. So you do nothing different. This goes along w/ the fact that even SE people will use form 8959 to report the extra tax.

[My 2 cents]

Medicare is not a retirement program, and so it does not really fit in to allow employers to integrate based on the Medicare taxes they pay.

Technically, integration was not there to make up for the taxes not paid on higher earnings but to give credit for the impact on Social Security retirement benefits of the taxes that were paid.

But wasn't the original post about additional Medicare taxes owed by the highly paid employees? Integration has never factored in the FICA taxes paid by the employees, which is appropriate. The argument was always that the employer was paying for some of the Social Security retirement benefits on a limited basis, and integration was intended to allow the employer to equalize the total being paid by the employer (on a limited basis) for those above the limit (counting both Social Security benefits and the retirement plan benefits). Remember, integration is a tool for employers, and employees are not employers, so taxes paid by employees that are not also paid by employers are irrelevant when considering what should be allowed for integration. Does the employer owe any extra Medicare taxes for its highest-paid employees?