If you’re a high-income earner, you might be subject to the Additional Medicare Tax, a 0.9% tax on wages, self-employment income, and certain compensation exceeding specific IRS thresholds. Introduced under the Affordable Care Act (ACA) in 2013, this tax helps fund Medicare and applies based on your filing status. With the 2025 tax season approaching, it’s essential to determine if you owe this tax and know how it’s calculated.
Additional Medicare Tax
You must pay the Additional Medicare Tax if your combined wages, compensation, or self-employment income exceed the IRS thresholds. These limits vary depending on your tax filing status:
| Filing Status | Income Threshold |
|---|---|
| Married filing jointly | $250,000 |
| Married filing separately | $125,000 |
| Single | $200,000 |
| Head of household (with qualifying person) | $200,000 |
| Qualifying widow(er) with dependent child | $200,000 |
What Income Is Subject to the Tax?
This tax applies to all Medicare-taxable income that surpasses these limits, including:
- Wages and salaries
- Tips and non-cash fringe benefits
- Self-employment income
- Railroad retirement (RRTA) compensation
Employer Withholding
Employers must start withholding the 0.9% Additional Medicare Tax once an employee’s wages exceed $200,000 in a calendar year. This applies even if you’re filing jointly and won’t owe the tax based on your combined household income.
If you have multiple jobs and no single employer withholds the tax because each pays you less than $200,000, you are still responsible for calculating and paying the tax when filing your tax return. In such cases, adjusting Form W-4 to request additional withholding or making estimated tax payments can help avoid unexpected liabilities.
Special Considerations
- Fringe benefits and tips are included in Medicare-taxable income, meaning they count toward your threshold.
- Self-employed individuals must calculate the tax based on their net self-employment income.
- Nonresident aliens and U.S. citizens living abroad are not exempt if their income is subject to Medicare taxes.
How to Calculate
Taxpayers calculate the Additional Medicare Tax using Form 8959, which is filed along with Form 1040 or 1040-SR. Employers report any amount withheld on Form W-2.
Example Calculations
Scenario 1: Single Filer
- Wages: $130,000
- Self-employment income: $145,000
- Total income: $275,000 (exceeds the $200,000 threshold)
- Taxable amount: $75,000 (amount above $200,000)
- Additional Medicare Tax owed: $675 (0.9% of $75,000)
Scenario 2: Married Filing Jointly
- Spouse 1 wages: $150,000
- Spouse 2 self-employment income: $175,000
- Total income: $325,000 (exceeds the $250,000 threshold)
- Taxable amount: $75,000
- Additional Medicare Tax owed: $675
Scenario 3: Head of Household
- Wages: $225,000
- Self-employment income: $50,000
- Total income: $275,000 (exceeds the $200,000 threshold)
- Taxable amount: $75,000
- Additional Medicare Tax owed: $675
Key Takeaways for 2025
- The Additional Medicare Tax rate is 0.9% on earnings above IRS thresholds.
- Employers must withhold the tax on wages over $200,000, regardless of filing status.
- Self-employed individuals must calculate and pay the tax themselves using Form 8959.
- Wages and self-employment income are combined to determine liability.
- Fringe benefits and tips count toward the threshold.
- Estimated tax payments or adjusting withholding may help avoid owing large sums at tax time.
Tax Planning Tips
To avoid surprises during tax season, consider these strategies:
- Monitor your income to see if you’re approaching the threshold.
- Adjust your Form W-4 to request additional withholding if necessary.
- Make estimated tax payments if your employer isn’t withholding the tax.
- Consult IRS Publication 15 (Circular E) for employer guidelines and Publication 505 for tax withholding rules.
- Use tax software like TurboTax or consult a tax professional for personalized advice.
Knowing how the Additional Medicare Tax applies to your income can help you plan ahead and avoid unexpected tax bills. By staying informed and taking proactive steps, you can ensure compliance and minimize financial stress during tax season.
FAQs
Who has to pay the Additional Medicare Tax?
High-income earners whose wages or self-employment income exceed IRS thresholds.
What is the Additional Medicare Tax rate?
The tax rate is 0.9% on income exceeding IRS-set thresholds.
Do employers automatically withhold the tax?
Yes, but only on wages over $200,000 per employer, regardless of filing status.
How do self-employed individuals pay this tax?
They must calculate it on Form 8959 and report it on their tax return.
Can I adjust my withholding to cover this tax?
Yes, you can adjust Form W-4 or make estimated tax payments to avoid a large tax bill.
