As the 2025 tax season approaches, high-income earners should be aware of the Additional Medicare Tax, a 0.9% surcharge that applies to earnings above certain income thresholds. This tax, introduced under the Affordable Care Act (ACA), helps fund healthcare initiatives and remains a key part of the U.S. tax system.
Knowing whether you owe this tax and how it is calculated is crucial for financial planning, particularly for individuals with wages, self-employment income, or railroad retirement compensation.
Additional Medicare Tax
The Additional Medicare Tax applies to Medicare wages, self-employment income, and railroad retirement (RRTA) compensation once a taxpayer’s income surpasses these thresholds:
| Filing Status | Income Threshold |
|---|---|
| Married filing jointly | $250,000 |
| Married filing separately | $125,000 |
| Single, head of household, qualifying widower | $200,000 |
Any income above these limits will be taxed at an additional 0.9% rate. Unlike Social Security taxes, which have a wage cap, the Additional Medicare Tax has no earnings limit, meaning all income exceeding the threshold is subject to the tax.
Tax Calculated
The Additional Medicare Tax is calculated based on earnings above the threshold for a taxpayer’s filing status. Here’s how it works. The 0.9% tax applies only to Medicare wages that exceed the income threshold.
If you have self-employment income, the threshold is reduced by the Medicare wages you receive. Self-employment losses do not reduce the taxable amount—only positive income is considered. For those with RRTA compensation, that income is compared separately against the threshold.
Employers are required to withhold the tax once an employee earns more than $200,000 annually, regardless of marital status. However, if a taxpayer’s total income falls below the threshold, they may need to claim a refund when filing their return.
What to Expect
Employers must start withholding the Additional Medicare Tax in any pay period where an employee’s earnings cross the $200,000 mark and continue withholding for the rest of the year. However, employers do not match this tax like they do with standard Medicare and Social Security taxes.
Taxpayers must report this tax using Form 8959, which is filed along with Form 1040 or Form 1040-SR. Self-employed individuals may need to file Form 1040-SS.
If you expect to owe this tax but are concerned about insufficient withholding, you can adjust your W-4 to increase tax withholding or make estimated tax payments throughout the year to avoid penalties. The IRS Publication 505 (Tax Withholding and Estimated Tax) provides guidance on making estimated payments.
For U.S. citizens living abroad and nonresident aliens, no exemptions apply. If your income is subject to Medicare tax and exceeds the threshold, you must pay the Additional Medicare Tax.
Federal Taxes
The Additional Medicare Tax is layered on top of standard federal payroll taxes. Here’s how it fits into the bigger picture. Social Security tax remains at 6.2% for employers and employees, with a wage base limit of $176,100 in 2025.
Medicare tax is 1.45% for both employers and employees, with no wage cap. The Additional Medicare Tax is an extra 0.9% for income exceeding the threshold, applying only to the employee’s share.
Because Medicare taxes have no earnings limit, high earners need to be proactive in managing their tax liability. Ensuring accurate withholding and proper reporting will help avoid unexpected tax bills.
For more details, taxpayers should review Publication 15 (Circular E) and the Instructions for Form 8959 to ensure they comply with all current IRS guidelines.
FAQs
Who has to pay the Additional Medicare Tax?
High earners exceeding $200,000 (single) or $250,000 (joint) must pay.
When does the IRS start withholding the tax?
Employers start withholding once wages exceed $200,000 in a year.
Can self-employed individuals owe this tax?
Yes, self-employment income above the threshold is subject to the tax.
Does my employer pay part of the Additional Medicare Tax?
No, the 0.9% tax is only the employee’s responsibility.
How do I report and pay this tax?
Use Form 8959 when filing Form 1040 or 1040-SR.
