Obamacare tax could surprise some wealthy filers

It's hard to keep all the new Obamacare taxes straight, but there's one that some couples won’t see until they file their 2013 taxes next April, and bizarrely it could mean a surprise tax bill or a refund. It's the 0.9 percent Medicare surtax on wages and self-employment income (not to be confused with the separate new 3.8 percent net investment tax on capital gains, dividends and passive income).

Can you lessen the bite of the 0.9 percent surtax? In some cases, yes, if you act before year-end, says Mark Nash, a partner in PWC's Private Company Services practice in Dallas.

The surtax -- or additional Medicare tax (it is levied on top of the Medicare tax you already pay) -- is effective Jan. 1, 2013 and applies to wages and self-employment income above $250,000 per couple or $200,000 for a single. It applies to active income from a general partnership, but retirees get a break -- distributions from retirement accounts and Social Security benefits aren’t assessed the surtax.

Once you earn more than $200,000, you'll see the withholding for the 0.9 percent surtax on your paystub. Employers are obligated to collect the tax -- without regard to the employee's filing status or outside compensation.

So if you're a high-earner single with a corporate job, it's straightforward. You pay 1.45 percent Medicare tax on the first $200,000 of compensation plus 2.35 percent (1.45 percent plus the additional 0.9 percent) on compensation in excess of $200,000. (This is on top of the Social Security tax rate of 12.4 percent -- 6.2 percent paid by the employee and 6.2 percent by the employer -- calculated on the "wage base" up to $113,700 in 2013.)

Note: the impact of the additional Medicare tax goes up the more your salary goes up because unlike Social Security tax, there is no cap on the amount of compensation subject to Medicare tax, notes Mark Luscombe, a federal tax analyst with CCH, a Wolters Kluwer business, in the CCH 2013 Year-End Tax Planning Guide (.pdf file).

What gets complicated is if you hold more than one job, or have a day job and self-employment income on the side, and that pushes your total income above the threshold. Couples where one spouse is over the threshold and one is under, or where both spouses are under the threshold but combined they are over it, can all face underwithholding problems too.

Here's an example. If both spouses make $200,000, they're exempt on only $250,000, which means they're underwithheld by $1,350. That's what they'll owe come April if they don't adjust their W-4 withholding or pay in estimated tax payments to pay in now. If they don't take these corrective measures, they'd owe a penalty of about $27 calculates Kaye Thomas, founder of Fairmark.com.

For a couple with one high-earner spouse who sees the withholding on his paycheck and a spouse earning $100,000, they'll owe $900 in April.

Who gets a refund? A high earner spouse with a stay-at home or low-earner spouse. Say the high-earner spouse brings in $250,000 and the spouse is retired. The high-earner spouse's employer would be withholding on that extra $50,000, and it would be extra withholding.

Bizarrely, you can't fix this by asking your employer to stop withholding for the surtax -- nor can you fix the underwithholding example by asking your employer to withhold the surtax. Instead you have to adjust your W-4 to withhold more or less regular income tax.

"You're supposed to have figured this out," says Nash, who has been helping clients run the numbers to plan for the surtax.

Here are some ideas.

For wage earners, deferring the exercise of options or deferring some income as part of a nonqualified deferred compensation plan into next year could keep you under the threshold for this year. Unfortunately, the way the calculations work, stashing more in your 401k won't help reduce the amount of your wages subject to the surtax.

Self-employed individuals have more room to finesse or bunch their income. They could defer billing and collections until January 2014 and/or accelerate expense payments into 2013 to offset 2013 income. To the extent S Corp owners draw more than $200,000 in salary, they could take more as S Corp distributions and less as salary, but within reason. "You can’t manipulate this without any conscious at all," says Nash. (The Medicare base tax is 2.9 percent for the self-employed, so the surtax increases the total Medicare tax to 3.8 percent on self-employment income.)

Another warning: if you're just under the threshold, watch out. The threshold amounts are not indexed for inflation, so the tax will snare more people each year.