How to Calculate the Additional Medicare Tax
Understand how your filing status and earnings trigger the 0.9% Additional Medicare Tax and how to correctly calculate and manage your payments.
The Additional Medicare Tax is a 0.9% tax applied to earned income exceeding certain levels. This tax was implemented as part of the Affordable Care Act to provide funding for Medicare. It is calculated on top of the standard Medicare tax that is already withheld from employee paychecks or paid by self-employed individuals.
Determining if You Owe the Tax
Liability for the Additional Medicare Tax is based on income and filing status. The income thresholds are $250,000 for Married Filing Jointly, $125,000 for Married Filing Separately, and $200,000 for all other filing statuses, including Single, Head of Household, and Qualifying Widow(er).
The income used to determine liability includes your Medicare wages, any net earnings from self-employment, and Railroad Retirement Tax Act (RRTA) compensation. For most employees, Medicare wages are reported in Box 5 of their Form W-2, Wage and Tax Statement.
These income sources are aggregated. For example, if you have both W-2 wages and self-employment income, you must combine them to see if you exceed the threshold. A loss from self-employment cannot be used to decrease your W-2 wages for the purpose of this calculation.
The Calculation and Required Form
The Additional Medicare Tax is calculated using IRS Form 8959, which is filed with your annual income tax return, such as Form 1040. Form 8959 guides you through computing the exact amount of tax owed based on your income and filing status.
The calculation is a direct formula: the amount of your income that exceeds your filing status threshold is multiplied by 0.9%. For instance, a single individual with $230,000 in Medicare wages has income that exceeds their $200,000 threshold by $30,000. The calculation would be ($30,000 x 0.009), which results in an Additional Medicare Tax of $270.
The rules apply to combined household income for joint filers. For a married couple filing jointly where one spouse earns $160,000 and the other earns $140,000, their combined income is $300,000. This total exceeds their $250,000 threshold, so their tax would be calculated on the excess $50,000, resulting in a tax of $450.
Form 8959 is also used to reconcile the tax you owe with any amount that was already withheld by your employer during the year. This final liability figure is then transferred to your Form 1040 as an additional tax.
Paying the Additional Medicare Tax
Payment is handled through either employer withholding or estimated tax payments. For employees, employers begin withholding the 0.9% tax from wages once an employee’s pay for the year exceeds $200,000. This withholding continues for the rest of the calendar year, and there is no employer match for the Additional Medicare Tax.
A complication can arise because employers withhold based only on an individual’s wages exceeding $200,000, without regard to filing status or a spouse’s income. This can lead to under-withholding for a married couple whose combined income exceeds the $250,000 joint threshold, even if neither spouse individually earns over $200,000. To address a potential shortfall, you can submit a revised Form W-4, Employee’s Withholding Certificate, to your employer to request that additional income tax be withheld from your paychecks.
For individuals with self-employment income, or for employees who find their withholding is insufficient, the tax must be paid through estimated tax payments. These payments are made quarterly throughout the year to cover your total tax liability. Factoring the Additional Medicare Tax into your estimated payments is necessary to avoid potential underpayment penalties when you file your annual return.