What Is the Additional Medicare Tax and Who Pays It?
Certain high-income taxpayers are subject to an additional 0.9% Medicare tax. Understand how liability is determined and the mechanics of paying this surtax.
The Additional Medicare Tax is a surtax levied on high-income earners, separate from the standard Medicare tax paid by most workers. Enacted as part of the Affordable Care Act (ACA) in 2013, this tax adds a 0.9% rate on earnings that exceed specific government-set thresholds. This tax mechanism is designed to help fund Medicare and certain provisions of the ACA. Unlike the regular Medicare tax, which involves a contribution from both the employee and the employer, the Additional Medicare Tax is the sole responsibility of the employee. There is no corresponding employer match for this specific tax.
Income Thresholds for Liability
Whether you owe the Additional Medicare Tax depends on your income and filing status. The Internal Revenue Service (IRS) establishes specific income thresholds that trigger this liability. The income measured against these amounts includes your total Medicare wages, self-employment earnings, and Railroad Retirement Tax Act (RRTA) compensation.
The income levels that trigger the tax are:
- Married Filing Jointly: $250,000
- Single, Head of Household, or a Qualifying Widow(er): $200,000
- Married Filing Separately: $125,000
For example, a single individual earning $195,000 would not owe any Additional Medicare Tax. A married couple filing a joint return with combined earnings of $240,000 would similarly have no liability, as their income is below the relevant threshold.
Calculating the Additional Medicare Tax
The 0.9% tax rate is applied only to the portion of your earnings that exceeds the income threshold for your filing status, not your total income. For example, a single individual with annual Medicare wages of $240,000 exceeds the $200,000 single-filer threshold by $40,000. The tax owed would be 0.9% of $40,000, resulting in a liability of $360.
Similarly, a married couple filing jointly with combined wages of $310,000 exceeds their $250,000 threshold by $60,000. Their tax liability would be 0.9% of $60,000, which is $540. This calculation is consistent regardless of how the income is split between spouses.
If you have both wages and self-employment income, you first determine the tax on your wages above the threshold. Then, you reduce the income threshold by your total wages to see how much of your self-employment income is subject to the tax. A self-employment loss is not factored into this calculation.
Reporting and Paying the Tax
Taxpayers report their Additional Medicare Tax liability on Form 8959, Additional Medicare Tax, which is filed with an annual income tax return like Form 1040. To complete Form 8959, you will need information from your Form W-2 for Medicare wages or your net earnings from Schedule SE for self-employment income.
Employers are required to begin withholding the 0.9% tax from an employee’s wages during the pay period in which their pay for the year exceeds $200,000. This withholding is done without regard to the employee’s filing status or other income sources.
A common issue arises for married couples when each spouse earns less than $200,000, but their combined income exceeds the $250,000 joint filing threshold. In this case, neither employer would automatically withhold the tax. An individual with two jobs earning $150,000 from each would not have the tax withheld by either employer. To avoid underpayment penalties, taxpayers in these situations may need to make estimated tax payments or request additional income tax withholding from their employer using Form W-4.
Self-employed individuals are responsible for paying the Additional Medicare Tax themselves. They must include the tax in their quarterly estimated tax payments, which are made using Form 1040-ES.