Why Do I Have to Pay Additional Medicare Tax?

The Additional Medicare Tax is an extra 0.9% tax applied to higher-income earners on top of the standard Medicare payroll tax. Introduced under the Affordable Care Act, it helps fund Medicare and applies only to wages, compensation, and self-employment income above certain thresholds.

Understanding why this tax applies depends on total earnings, filing status, and whether you’re self-employed or have multiple employers.

Income Threshold

The Additional Medicare Tax applies when earnings exceed IRS-set limits. For 2024, the threshold is $200,000 for individuals, $250,000 for married couples filing jointly, and $125,000 for those married but filing separately. These amounts are fixed and do not adjust for inflation.

Employers must withhold the extra 0.9% once an employee’s wages surpass $200,000 in a calendar year, regardless of tax filing status. This can result in under-withholding for married couples who earn below the threshold individually but exceed it when combined. Since employers do not consider household income, affected taxpayers may need to pay the difference when filing their return.

Investment income, such as capital gains, dividends, and rental income, is not subject to the Additional Medicare Tax but may be taxed under the separate 3.8% Net Investment Income Tax (NIIT), which applies to high-income individuals. While both taxes were introduced under the Affordable Care Act, they have different thresholds and rules.

Filing Status Differences

Your tax filing status affects whether you owe the Additional Medicare Tax.

For married couples filing jointly, their combined income determines whether the tax applies. If one spouse earns significantly more than the threshold while the other earns less, their total income could push them above the $250,000 limit, even though neither would owe the tax individually. This is particularly relevant for dual-income households where both partners have moderate salaries that, when combined, exceed the threshold.

Married individuals filing separately face a much lower threshold of $125,000. A spouse earning just above that amount would owe the tax, even if total household income is well below the joint filing threshold. This lower limit can make separate filing less beneficial for high earners, despite potential advantages in deductions or credits.

For head-of-household filers, the threshold remains $200,000, the same as for single filers. This status applies to unmarried individuals who pay more than half the cost of maintaining a home for a qualifying dependent. While the threshold is identical to single filers, head-of-household filers may benefit from higher standard deductions and more favorable tax brackets, which can help offset the tax’s impact.

Self-Employment Considerations

Self-employed individuals must calculate and pay their own Medicare taxes, including the Additional Medicare Tax, since they do not have an employer to withhold it. Unlike employees who split Medicare tax costs with their employer, self-employed individuals pay both the employee and employer portions, effectively doubling their Medicare tax obligation before the additional 0.9% applies.

The self-employment tax rate in 2024 remains 15.3%, covering Social Security (12.4%) and Medicare (2.9%). Once net self-employment income exceeds the threshold, the Additional Medicare Tax applies only to the Medicare portion, raising the effective rate on that portion to 3.8%. Since this tax is not automatically included in estimated tax calculations, self-employed individuals must account for it when making quarterly payments to avoid underpayment penalties.

Deductions play a key role in determining whether a self-employed individual owes the tax. Business expenses—such as office costs, travel, and equipment—reduce net earnings and can help keep income below the threshold. However, the deduction for the employer-equivalent portion of self-employment tax does not reduce income subject to the Additional Medicare Tax, meaning the tax may still apply even after claiming this deduction.

Employer Withholding

Employers must withhold the Additional Medicare Tax once an employee’s wages exceed $200,000 in a calendar year, regardless of marital status or total household income. Since employers only consider wages they pay, they do not account for income from other jobs or a spouse’s earnings.

This can create issues for individuals with multiple jobs. If no single employer pays them more than $200,000, none may withhold the tax, even if their combined wages exceed the threshold. In such cases, taxpayers may need to make additional payments to cover the shortfall.

Possible Underpayment Adjustments

Even when employers withhold the Additional Medicare Tax, some taxpayers may still owe more when filing their return due to multiple income sources or incorrect withholding. The IRS expects individuals to ensure they have paid the correct amount throughout the year, and underpayment can result in penalties.

A common reason for underpayment is having multiple employers who each fail to withhold the tax because an individual’s wages from any single job do not exceed $200,000. Since withholding is not cumulative across different employers, taxpayers in this situation may need to make estimated tax payments or adjust their Form W-4 withholdings.

Self-employed individuals who miscalculate their quarterly estimated tax payments may also owe more than expected when filing their return. IRS Form 8959 is used to calculate and report Additional Medicare Tax liability, helping reconcile any discrepancies.

If a taxpayer has overpaid due to excess withholding, they can claim a refund when filing their tax return. This can happen when an employer withholds the tax based on wages exceeding $200,000, but the taxpayer’s total income—such as in a married couple filing jointly—ends up below the applicable threshold. Reviewing pay stubs and tax withholdings throughout the year can help individuals avoid surprises and ensure they are neither underpaying nor overpaying.