Starting in 2013, a new Additional Medicare Tax has been put into place. This tax is part of the Affordable Health Care Act.
This tax only applies to employees with Medicare wages in excess of $200,000/year. If no one in your company will be subject to this tax in the coming year (or two), then it is perfectly acceptable to ignore making any changes at this time.
Employers are required to withhold from the employee an additional .9% (note the decimal, just under 1%) on wages over $200,000. This tax only applies to the employee’s withholding, and is NOT matched by the employer.
In the payroll system, there are user modifiable formulas that perform all the tax calculations. These formulas for the tax withholdings have not been changed for many years. Most often, a table change alone is all that is necessary on an annual basis. But because of the nature of this change, the actual formula needs to be changed.
CAUTION: The formulas are shared by all companies in the system, so this change can be made in any company. Changing the formula has the potential to affect ALL employees. So be sure to proof your work closely, and look closely at a Payroll Edit Register on your next payroll. You want to make sure that the correct tax is being withheld for Medicare after making this change. PROOF by company totals, and don’t forget to back off any pre-tax deductions.
To manually make the necessary changes, you go to Payroll, File Maintenance, Formula Maintenance. Enter the ID of: PFED_MED.RTN (or select this ID from the inquiry window). At the bottom of this document I am including the line detail for the entire new formula. Each formula may use up to 6 factors. The new formula has .9 in Factor 1, and 200000 in Factor 2.
After you have made your changes to the formula, under Master File Lists, you can print the formula using the Formulas List function.
There are tricks to editing a formula. To change the old 14 line formula, you will not be making any change to the first 5 lines. So you will first go to line 6 of the old formula and press the <INSERT> key to move everything down and give you a place to insert the new line 6. After that line is in place, you move down to the new line 7, and press the <INSERT> again to insert the second new line. In the same way, move down to line 8 and insert the third new line. So in the new formula, lines 1-5 are the same as the old formula, lines 6-8 are new lines, and at this point lines 9-17 are the same as lines 6-14 in the old formula. So after the three new lines have been inserted, you must edit the remaining lines as shown below. Note that references throughout the formula to line numbers take the form: LIxxx where xxx is a line number with leading zeros. The letter O is found in the words YTDWITHHOLDINGS on line 11 and UNCOLMED on line 15, all the rest are zeros.
NOTE: When viewing the formula on the screen, long lines (LI005) will appear to be cutoff on the right side until you edit the individual line (but you don’t need to edit line 5). If your existing formula has any factors (1,2,3), you can edit these as shown below. No factors were actively used in the old formula.
Formula PFED_MED.RTN
Employee Medicare Tax
Factor 1 = .9 Factor 2 = 200000 (all other factors are zero)
First five lines remain unchanged
LI001 TABLE2(2,1,RETVAL)
LI002 TABLE2(2,2,RETVAL)
LI003 TAXEARN+YTDEARNINGS
LI004 IF(LI003>LI002)TH(LI002)EL(LI003)
LI005 TAXEARN; IF(LI003>LI002)TH
IF(YTDEARNINGS>LI002)TH(0)EL(LI002-YTDEARNINGS)
Three lines are
inserted
LI006 LI003-FC2
LI007 IF(LI006<0)TH(0)EL(LI006)
LI008 LI007; IF(YTDEARNINGS>FC2)TH(TAXEARN)
These two lines
are changed significantly by typing over what is there
LI009 ((LI005*LI001)+(LI008*FC1))/100
LI010 ((LI004*LI001)+(LI007*FC1))/100
Remaining lines
are edited to adjust for line number changes
LI011 LI010-YTDWITHHOLDINGS
LI012 IF(LI011>TAXEARN)TH(TAXEARN)EL(LI011)
LI013 IF(LI012<0)TH(0)EL(LI012)
LI014 IF(LI009<LI013)TH(LI013-LI009)EL(0)
LI015 MIN(LI014,UNCOLMED)
LI016 LET CH4[3]=LI[15]
LI017 LI013