Additional Medicare Tax
Editor’s Note: Learn more about the additional Medicare tax and if you are subject to paying additional 0.9% on earned income in this post.
What is the Additional Medicare Tax?
Medicare is a federal health insurance program consisting of three parts (A, B, and D). Most people don’t pay for Medicare Part A (hospital insurance) because its funded by taxpayer contributions to the Social Security Administration. Employees pay 1.45% of their earnings, employers pay another 1.45%, and self-employed individuals pay the full 2.9% on their own. Income up to a threshold amount is subject to the “regular” Medicare tax.
Under the Affordable Care Act, taxpayers who earn above a set income level (depending on filing status) pay 0.9% more into Medicare on top of the regular contribution. This extra tax is called the Additional Medicare Tax.
What is the Income Threshold for Additional Medicare Tax?
If you are a high earner, you are subject to the 0.9% additional Medicare tax on earned income in excess of the threshold amount.
The threshold amounts are based on your filing status:
- Single, head of household, or qualifying widow(er) — $200,000
- Married filing jointly — $250,000
- Married filing separately — $125,000
For purposes of the additional Medicare tax, earned income includes:
- Certain noncash fringe benefits
- Self-employment income
Your employer will begin withholding the additional Medicare tax once your wages reach a certain amount. Your filing status isn’t important for this. Withholding starts when your wages and other compensation are more than $200,000 for the year. This is true even if you won’t be liable for the additional Medicare tax when you file your return.
Examples of Additional Medicare Tax
You earn $225,000 and are married filing jointly. Your spouse earns $10,000. Since your joint earned income ($235,000) isn’t more than $250,000, you won’t owe Additional Medicare Tax. However, your employer will still withhold the tax from your paycheck on wages over $200,000. Any tax withheld from your paycheck that you’re not liable for will be applied against your taxes on your income tax return.
If you earn $200,000 or less, your employer will not withhold any of the additional Medicare tax. This could happen even if you’re liable for the tax.
You earn $150,000 and are married filing jointly. Your spouse also earns $150,000. You and your spouse’s combined income ($300,000) is more than $250,000. So, you’ll be liable for the additional 0.9% Medicare tax. However, neither of your employers will withhold the tax since each of your wages is less than $200,000. So, you should make estimated tax payments and / or request additional withholding on Form W-4.
Where to Go for More Help with Additional Medicare Tax
Learn more about President Trump’s recent Executive Order, if an Affordable Care Act change is in the cards and the potential tax impact at H&R Block.
If you are under 30 and no longer covered by your parents, consider looking into the cost of a catastrophic health insurance plan. Learn more at H&R Block.
When you turn 26, you may reach the age limit of your parents' health insurance. Learn about your options for health insurance after 26 at H&R Block.
Marketplace Healthcare Open Enrollment for 2017 opens soon and there are other important dates to put on your calendar. Read more at H&R Block.