Additional Medicare Tax
The additional Medicare tax is 0.9%, but it doesn’t apply to everyone like standard Medicare tax does. You’ll only have to pay the additional tax if your income surpasses a specific threshold. Knowing how it’s calculated, along with what the additional tax pays for, can help you understand the functionality and reasoning behind the additional Medicare tax.
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Lindsey Crossmier is an accomplished writer with experience working for The Florida Review and Bookstar PR. As a financial writer, she covers Medicare, life insurance and dental insurance topics for RetireGuide. Research-based data drives her work.Read More
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Stephen Kates, CFP®
Certified Financial Planner™ Professional and Founder of Clocktower Financial Consulting
Stephen Kates is a Certified Financial Planner™ professional and personal finance expert with over a decade of experience working with individuals and families who need help with their finances. With experience as a financial advisor for two of the largest financial firms in the country, Stephen has worked with hundreds of clients to build comprehensive financial plans to grow and protect their wealth.Read More
- Published: August 31, 2022
- Updated: November 1, 2022
- 4 min read time
- This page features 4 Cited Research Articles
- Edited By
What Is the Additional Medicare Tax?
The additional Medicare tax was issued by the Internal Revenue Service (IRS) on November 26, 2013. Additional Medicare tax doesn’t apply to everyone, only those whose income surpasses a specific threshold.
The additional Medicare tax applies to your wages, compensation, Railroad Retirement Tax Act (RRTA) compensation or self-employment income. Gratuity tips you may receive at work should also be accounted for.
Who Pays for the Additional Medicare Tax?
If you’re filing single, you’ll be responsible for paying the additional Medicare tax if your income exceeds $200,000.
If you’re married, there are two different threshold limits. The threshold fluctuates depending on if you file taxes jointly or separately.
If you’re married and filing separately — you’re responsible for paying the additional Medicare tax if your income threshold is above $125,000. If you’re married and filing jointly — the income threshold increases to $250,000.
There are two other income thresholds for the additional Medicare tax, depending on if you are a widow or widower, or head of a household.
If you’re a widow or widower with a dependent child and your income threshold exceeds $200,000, you must pay the additional Medicare tax.
If you’re head of a household and responsible for filing the taxes, you’ll be responsible for paying the additional Medicare tax if your income is above $200,000.
How Does the Additional Medicare Tax Work?
The way you get taxed for the additional Medicare tax depends on if you are filing jointly or separately. The IRS assumes if you file jointly, you will both be making a higher income, therefore, there is a higher threshold.
Note that the additional Medicare tax is on top of the standard Medicare tax, which applies to everyone. Standard Medicare tax is 1.45% — or 2.9% if you are self-employed. Unlike the additional Medicare tax, there is no base limit on wage, so all wages are subject to standard Medicare tax.
To calculate your additional Medicare tax liability, you’ll need Form 8959 when filing for your tax return. The IRS has instructions for Form 8959 available to help you file correctly.
How It’s Calculated
To calculate how much your additional Medicare tax is, you need to determine how you’re filing your taxes, how much your salary is and how much your salary exceeds the threshold.
For example, if you’re filing single and your income is $250,000, only $50,000 will be subject to the 0.9% tax. This is because the threshold limit for filing single is $200,000. To figure out how much you owe, you would calculate 0.9% of $50,000, which is $450.
|File Status||Income||Amount Over Income Threshold||0.9% of Amount Over Income Threshold|
|Married, Filing Jointly (Income Threshold $250,000)||$280,000||$30,000||$270|
|Filing Single (Income Threshold $200,000)||$300,000||$100,000||$900|
|Married, Filing Separately (Income Threshold $125,000)||$135,000||$10,000||$90|
Suppose both spouses’ incomes are below $200,000. In that case, their employers will not automatically withhold the additional 0.9%. The employee would need to request additional withholding, pay the estimated taxes or pay the owed amount after filing for the year.
What Does the Additional Medicare Tax Pay For?
The additional Medicare tax funds the Affordable Care Act tax provisions, as well as the premium tax credit, which helps low-income beneficiaries pay for their premiums.
Enacted in March 2010, The Affordable Care Act’s primary goals are to make health insurance more affordable, expand the Medicaid program, and support new, cost-efficient medical care methods.
Though Medicare offers a wide range of cost and coverage options, funding the Affordable Care Act provides further aid to those in need. Your additional Medicare tax contributions help individuals or families below the federal poverty level.
The Department of Health & Human Services has a briefing book that was updated in March 2022, which highlights the Affordable Care Act’s accomplishments.
4 Cited Research Articles
- Internal Revenue Service. (2022, May 20). Topic No. 751 Social Security and Medicare Withholding Rates. Retrieved from https://www.irs.gov/taxtopics/tc751#:~:text=The%20current%20tax%20rate%20for,employee%2C%20or%202.9%25%20total
- U.S. Department of Health & Human Services. (2022, March 17). About The Affordable Care Act. Retrieved from https://www.hhs.gov/healthcare/about-the-aca/index.html
- Internal Revenue Service. (2022, January 18). Questions and Answers for the Additional Medicare Tax. Retrieved from https://www.irs.gov/businesses/small-businesses-self-employed/questions-and-answers-for-the-additional-medicare-tax
- Internal Revenue Service. (2021, December 6). Instructions for Form 8959 (2021). Retrieved from https://www.irs.gov/instructions/i8959
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