What Is Medicare Surtax on a Paycheck?

The Additional Medicare Tax is a federal tax that helps fund healthcare initiatives. It became effective in 2013, applying to income exceeding certain thresholds. This tax is an additional contribution to Medicare, distinct from the standard Medicare tax. Its purpose is to ensure higher-income individuals contribute more to the healthcare system.

Identifying Who Pays the Surtax

The Additional Medicare Tax applies to individuals whose income surpasses predefined thresholds, which vary based on their tax filing status. For those filing as single, head of household, or qualifying widow(er), the tax applies to earned income above $200,000. Married individuals filing jointly are subject to the tax on combined earned income exceeding $250,000. For married individuals filing separately, the threshold is $125,000.
This tax is levied on earned income, which includes wages, salaries, tips, and other compensation subject to Medicare tax, as well as net earnings from self-employment. The tax only applies to the amount of income above these specified thresholds, not the entire income.

Calculating the Surtax Amount

The Additional Medicare Tax rate is 0.9%. This rate applies to the portion of an individual’s earned income that exceeds the applicable threshold for their filing status. This tax is levied in addition to the standard Medicare tax rate of 1.45% for employees and 2.9% for self-employed individuals. For income above the threshold, an employee’s total Medicare tax rate becomes 2.35% (1.45% + 0.9%), while a self-employed individual’s rate becomes 3.8% (2.9% + 0.9%).
For example, a single filer with $275,000 in wages would pay the additional 0.9% on $75,000 ($275,000 – $200,000 threshold), resulting in an Additional Medicare Tax of $675 ($75,000 \ 0.009). A married couple filing jointly with combined wages of $300,000 would pay the 0.9% on $50,000 ($300,000 – $250,000 threshold), amounting to $450 in Additional Medicare Tax.

How the Surtax Appears on Paychecks

Employers are responsible for withholding the Additional Medicare Tax from an employee’s wages once their annual earnings reach $200,000. This $200,000 withholding threshold applies regardless of the employee’s tax filing status. The employer does not contribute a matching portion for this tax; it is solely an employee responsibility.
On a paycheck stub, this tax might appear as a separate line item or be combined with the regular Medicare tax withholding. The total amount of Medicare tax withheld, which includes both the standard 1.45% and any applicable 0.9% Additional Medicare Tax, is reported in Box 6 of Form W-2. For self-employed individuals, this tax is not withheld from a paycheck; instead, they account for it when making estimated tax payments throughout the year.

Reporting the Surtax on Tax Returns

Taxpayers are required to report their Additional Medicare Tax liability when filing federal income tax returns. This involves using Form 8959, Additional Medicare Tax, which calculates the amount of tax owed based on the individual’s total income and filing status. The information from Form 8959 is then carried over to Form 1040.
If a taxpayer has self-employment income, Schedule SE (Form 1040) is also used in conjunction with Form 8959 to determine the total tax liability. Taxpayers must file Form 8959 even if an employer withheld the tax. If the amount withheld by an employer is insufficient to cover the full liability, taxpayers may need to make estimated tax payments or adjust their Form W-4 to increase future withholding.