What is a Surtax?

Surtax refers to a tax that is charged on the tax itself. It can be ascertained in the form of a percentage of a specific amount or it can be charged as a flat dollar amount. Surtax is also called a tax surcharge.

How Does a Surtax Work? 

A surtax is charged for arranging finance for a particular government plan, whereas basic income tax is used to finance a number of programs. Surtax helps taxpayers in knowing the amount of money collected and spent by the government for a specific program. For instance, in the year 1968, President Lyndon B. Johnson implemented a surtax of 10% on business and general income so as to gather money for dealing with the Vietnam war. After the calculation of general income tax, the surtax was ascertained. Though majority of taxpayers had no idea about the extent of tax that was being contributed to the military expenditure, but they knew what amount of money the government was asking them to contribute, especially for the war. Individuals having higher income are supposed to pay more surtax. This usually happens in nations having a progressive tax policy. For instance, a person who paid 20% income tax in the 1960s would further pay a surtax of 10% leading to a total tax rate of 22%. A person who falls in the category of 50% tax would pay an additional 10% surtax leading to a total tax of 55%. Taxpayers having income beyond a specific limit need to pay a surtax to the government. For instance, wealth tax and solidarity tax are types of surtax that taxpayers need to pay to the government. As per the statistics in France, around 350,000 households pay wealth tax of at least 1.3 million. As mentioned above, the surtax refers to tax that is an add-on on the tax. After East and West collaborated together in 1991, Germany enforced a solidarity tax rate of 7.5% on individual income. In 1998, it was lowered to 5.5% that was applied to the annual commercial and personal tax bill of taxpayers. Its aim was to offer capital for the new administration. A few years back in 2013, the Obama administration imposed a surcharge of 0.9% on Medicare. This tax was imposed beyond the Medicare tax that taxpayers already paid, and is known as the additional medicare tax. It is applicable on wages and self-employment income of over $250,000 for every couple or $200,000 for unmarried individuals. An employee who has a salary of over $200,000 needs to pay 1.45% as the basic medicare tax on the first $200,000, and a surtax of 0.9% on the amount over $200,000.