If you think you’ll be hit by the 0.9% Medicare surtax on earned income…Consider increasing your withholdings. This new levy kicks in for singles and heads of household with earnings over $200,000…$250,000 for married couples.
Employers must begin to withhold the tax from worker paychecks for the pay period when wages first exceed $200,000, regardless of their marital status. This can lead to underwithholding for a couple if each spouse earns less than $200,000 but their wages totally more than $250,000. The same goes for an employee with a self employed spouse if their combined earnings will exceed $250,000. Ditto if you’ll owe the 3.8% Medicare surtax on investment income, with can nail singles wit AGI above $200,000 and couples over $250,000 AGI.
Having more income tax withheld from your Nov. and Dec. paychecks or IRA payouts can help you avoid a penalty. You needn’t pay in all the tax you think you’ll owe. As long as you prepay 90% of 2013’s tax bill, you dodge the underpayment penalty. Or you can escape its reach by prepaying 100% of your tax liability for 2012… 100% if you’re 2012 AGI topped $150,000… no matter how much you owe for 2013.