Employers should consider reviewing their procedures for withholding and paying FICA tax in light of the recent district court decision in Davidson v. Henkel Corp.  The court concluded that the employer was liable to participants in a nonqualified deferred compensation plan for failing to withhold FICA tax in a manner that would have decreased their overall tax liability.  The additional FICA tax reduced the participants’ benefits under the plan, and the court concluded that this result was inconsistent with the plan’s design and purpose. 
Continue Reading Employers Might Be Liable to Nonqualified Plan Participants for Failing to Follow FICA’s Special Timing Rule

The Affordable Care Act created two new taxes for individuals whose income exceeds $200,000 ($250,000 for married couples filing joint returns).  Employees must pay an additional 0.9% Medicare tax on wages in excess of these dollar thresholds.  Individuals whose adjusted gross income exceeds the dollar thresholds also must pay a 3.8% tax on their net investment income.

Both taxes became effective in 2013, but high-income employees will pay the taxes for the first time next year, when they file their 2013 tax returns.  Employers are required to withhold the 0.9% additional Medicare tax, and are liable for any amount they fail to withhold.

The IRS recently published a final regulation and an updated set of FAQs interpreting the additional Medicare tax.  The IRS also published a final regulation, a new proposed regulation, and updated FAQs interpreting the tax on net investment income.
Continue Reading IRS Issues Guidance on New Medicare Taxes for High-Income Employees