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
Marketplace health insurance options fall into five categories. Which one is right for you? Learn more at H&R Block.
If you need help understanding the ACA, a specialist may be able to help. Learn more about ACA specialists and what they can do for you at H&R Block.
Afraid of owing a penalty for not having health insurance? See if you qualify for the hardship exemption with the experts at H&R Block.
If you don't have health insurance, learn more about the Affordable Care Act requirements, including tax filing requirements, at H&R Block.