As the 2025 tax season approaches, high-income earners need to be aware of the Additional Medicare Tax, a 0.9% tax that applies to wages, self-employment income, and railroad retirement compensation above certain income thresholds.
This tax was introduced under the Affordable Care Act (ACA) to help fund healthcare programs. Unlike Social Security taxes, which have a wage base limit, the Additional Medicare Tax applies to all earnings above the threshold without any cap.
Who Owes This Tax?
The Additional Medicare Tax applies to individuals whose earnings exceed the following limits based on their tax filing status:
| Filing Status | Income Threshold |
|---|---|
| Married filing jointly | $250,000 |
| Married filing separately | $125,000 |
| Single, Head of Household, Qualifying Widow(er) | $200,000 |
Once a taxpayer’s income surpasses these amounts, the 0.9% tax applies to the excess earnings. Employers are required to withhold the tax once an employee’s wages exceed $200,000 in a calendar year, regardless of their filing status. However, if a married couple filing jointly earns over $250,000 combined but neither spouse exceeds $200,000 individually, they may still owe the tax when filing their return.
How Is the Tax Calculated?
Calculating the Additional Medicare Tax depends on the type of income earned:
- For W-2 Employees:
- The 0.9% tax applies to wages above the income threshold for their filing status.
- Employers begin withholding once an individual’s earnings exceed $200,000, but this doesn’t account for spousal income.
- For Self-Employed Individuals:
- The tax applies to self-employment income above the threshold.
- Self-employment losses are not deducted when calculating this tax.
- The standard 2.9% Medicare tax still applies to all self-employment income, with the Additional Medicare Tax only affecting income above the threshold.
- For Railroad Retirement Compensation (RRTA):
- This income is separately compared to the threshold and taxed accordingly.
What to Expect in 2025
Taxpayers earning above the threshold should keep the following in mind:
- Employers must withhold the tax on earnings over $200,000 per year.
- There is no employer match for the Additional Medicare Tax. Unlike the standard Medicare tax, employers do not contribute to this tax.
- Taxpayers must report the tax using Form 8959, which is filed with Form 1040 or 1040-SR. Self-employed individuals may need Form 1040-SS.
- If withholding is insufficient, taxpayers may need to adjust their W-4 form to increase tax withholding or make estimated tax payments throughout the year to avoid underpayment penalties.
Nonresident aliens and U.S. citizens living abroad are not exempt from this tax. If their income meets the threshold and is subject to Medicare tax, they must pay the Additional Medicare Tax.
How It Works with Other Taxes
The Additional Medicare Tax is stacked on top of existing federal taxes, making it important for high earners to understand their total tax burden:
| Tax Type | Rate | Wage Base Limit |
|---|---|---|
| Social Security Tax (Employee) | 6.2% | $176,100 (2025) |
| Social Security Tax (Employer) | 6.2% | $176,100 (2025) |
| Medicare Tax (Employee) | 1.45% | No cap |
| Medicare Tax (Employer) | 1.45% | No cap |
| Additional Medicare Tax | 0.9% | Earnings above threshold |
Since Medicare taxes have no wage cap, high-income individuals need to be proactive in managing their tax liability. Reviewing Publication 15 (Circular E) and the Instructions for Form 8959 can help taxpayers stay compliant and avoid surprises at tax time.
Planning ahead and ensuring accurate withholding will help high earners minimize penalties and properly manage their tax obligations in 2025.
FAQs
Who pays the Additional Medicare Tax?
Individuals earning above certain income thresholds must pay it.
What is the 2025 Additional Medicare Tax rate?
The tax rate is 0.9% on income exceeding the threshold.
Does my employer match this tax?
No, the Additional Medicare Tax is paid only by employees.
When does my employer start withholding the tax?
Withholding begins once earnings exceed $200,000 annually.
How do I report the Additional Medicare Tax?
Use Form 8959 when filing Form 1040 or 1040-SR.
