When Does the Additional Medicare Tax Kick In?

The Additional Medicare Tax is a federal levy applied to higher-income taxpayers, introduced to help fund the Medicare program. This tax is distinct from the standard Medicare tax, which applies to all earned income without a limit. The Additional Medicare Tax applies only to income exceeding specific thresholds, ensuring individuals with higher earnings contribute an additional amount to Medicare funding.

Income Thresholds

The Additional Medicare Tax applies when a taxpayer’s income surpasses predetermined thresholds, which vary based on filing status. For the 2025 tax year, the tax applies to combined Medicare wages, self-employment income, and Railroad Retirement Tax Act (RRTA) compensation exceeding these amounts. Single filers, Heads of Household, and Qualifying Widow(er)s are subject to the tax if their income is above $200,000. Married individuals filing jointly face a threshold of $250,000, while those married filing separately have a threshold of $125,000. These thresholds are based on Adjusted Gross Income (AGI).

Types of Income Subject to the Tax

The 0.9% Additional Medicare Tax applies to specific types of income once an individual’s income exceeds the applicable threshold. This includes earned income such as Medicare wages (salaries, bonuses, and tips) and Railroad Retirement Tax Act (RRTA) compensation. For self-employed individuals, the tax applies to net earnings from self-employment. Medicare wages and self-employment income are combined to determine if the income exceeds the threshold.

The tax also applies to unearned income, specifically Net Investment Income (NII). NII generally includes income from interest, dividends, capital gains, rental and royalty income, and non-qualified annuities. Certain income types are excluded from the Additional Medicare Tax, such as tax-exempt interest, unemployment compensation, Social Security benefits, and most distributions from qualified retirement plans like 401(k)s and IRAs.

How the Tax is Calculated and Paid

The Additional Medicare Tax is calculated at a rate of 0.9% on the amount of Medicare wages, RRTA compensation, or self-employment income that exceeds the applicable income threshold. For instance, if a single filer has $220,000 in Medicare wages, the tax applies to $20,000 ($220,000 – $200,000 threshold), resulting in an additional tax of $180.

For individuals with Net Investment Income (NII), the 0.9% tax applies to the lesser of their total NII or the amount by which their Modified Adjusted Gross Income (MAGI) surpasses the relevant threshold. For example, a single filer with $210,000 MAGI and $5,000 in NII would pay the tax on the $5,000 NII, as it is less than the $10,000 by which their MAGI exceeds the threshold.

Employers are generally required to withhold the Additional Medicare Tax from an employee’s wages once the wages exceed $200,000 in a calendar year, regardless of the employee’s filing status. This withholding obligation begins in the pay period when the $200,000 threshold is met. For self-employed individuals or those with significant Net Investment Income, estimated tax payments may be necessary throughout the year to cover this liability and avoid underpayment penalties. All amounts related to the Additional Medicare Tax, including any employer withholding, are reported by the taxpayer on Form 8959, which is filed with their individual income tax return, such as Form 1040.