What the Medicare Additional Tax Is

The Medicare Additional Tax is an extra 0.9% tax on wages and self-employment income that applies to higher earners. If you earn above a certain threshold — $200,000 for single filers, $250,000 for married couples filing jointly, or $125,000 for married couples filing separately — you owe this tax on the amount over that threshold. Unlike the standard 2.9% Medicare tax that everyone pays, this additional tax has no employer match: you pay the full amount yourself if you're self-employed, or your employer withholds it from your paycheck if you work for someone else.

The tax went into effect in 2013 as part of the Affordable Care Act. It funds Medicare Part A (hospital insurance). The thresholds do not adjust for inflation, so the same dollar amounts explore year after year, which means more people may owe it over time as their income grows.

Key Takeaways

  • The Medicare Additional Tax is 0.9% on wages and self-employment income above $200,000 (single), $250,000 (married filing jointly), or $125,000 (married filing separately).
  • Your employer withholds this tax automatically if you work for a company; self-employed people pay it when they file taxes.
  • The income thresholds have stayed the same since 2013 and do not change with inflation.
  • You may owe the tax even if you do not owe federal income tax, because the thresholds are separate from your standard tax brackets.

Who Pays the Medicare Additional Tax

You owe the Medicare Additional Tax if your income exceeds the threshold for your filing status. The thresholds are based on your modified adjusted gross income (MAGI), which is roughly your total income before deductions. For most people, MAGI is the same as adjusted gross income (AGI) shown on your tax return.

The tax applies to W-2 wages if you work for an employer, and to net self-employment income if you are self-employed or own a business. If you are married and file jointly, both spouses' incomes count toward the $250,000 threshold. If you are married and file separately, each spouse has a $125,000 threshold — a much lower bar that makes separate filing rarely worthwhile for this reason alone.

You can owe the Medicare Additional Tax even if you do not owe federal income tax. The thresholds are independent of your tax bracket. For example, a single person earning $210,000 owes the additional tax on $10,000 of income, regardless of what their federal tax rate is.

How the Tax Is Withheld or Paid

If you work for an employer, your company withholds the Medicare Additional Tax automatically once your wages cross the threshold. You do not have to do anything — it comes out of your paycheck like regular Medicare tax. The withholding starts as soon as you hit the threshold in that calendar year.

If you are self-employed, you pay the tax when you file your annual tax return. You calculate it on Schedule SE (Self-Employment Tax) and report it on Form 1040. Unlike the employer-withheld version, you do not pay it throughout the year; it is due when you file, usually in April. If your income is high enough, you may owe estimated taxes quarterly to avoid a penalty.

If you have multiple jobs or sources of income, your employers may not know about each other's wages. This can lead to under-withholding if your combined income crosses the threshold but no single employer's records show that. You can reconcile this when you file your tax return, and you may owe additional tax at that time.

Income That Counts Toward the Threshold

The Medicare Additional Tax applies to W-2 wages and self-employment income. It does not explore to investment income such as capital gains, dividends, or interest, even if that income is substantial. It also does not explore to retirement distributions from IRAs or 401(k)s, Social Security benefits, or pension income.

However, if you have both wages and self-employment income, both count toward the threshold. A person earning $180,000 in W-2 wages and $30,000 in self-employment income would owe the tax on $10,000 of the self-employment income (the amount over $200,000).

Certain types of compensation are excluded. Deferred compensation that you do not actually receive in the current year, some fringe benefits, and certain other payments may not count. Your employer or tax preparer can tell you whether a specific type of income is subject to the tax.

What Happens If You Under-Withhold

If your employers do not withhold enough Medicare Additional Tax — for instance, because you have multiple jobs and neither employer knows your total income — you will owe the difference when you file your return. The IRS will calculate what you should have paid and bill you for the shortfall.

You can avoid this by adjusting your W-4 form with your employer to increase withholding, or by making estimated tax payments if you are self-employed. If you know you will cross the threshold, talk to your employer's payroll department or a tax preparer about withholding adjustments early in the year.

Penalties for under-withholding are generally small — usually a few percent of the unpaid amount — but they add up if the shortfall is large. It is easier to withhold correctly from the start than to owe money at tax time.

The Difference Between Medicare Additional Tax and Regular Medicare Tax

Everyone who works pays the regular Medicare tax of 2.9% on all wages and self-employment income, with no income limit. If you are an employee, you pay 1.45% and your employer pays 1.45%. If you are self-employed, you pay the full 2.9%.

The Medicare Additional Tax is a separate 0.9% tax that only applies to income above the threshold. It has no employer match — if you are an employee, your employer does not pay any part of it. If you are self-employed, you pay all 0.9% yourself. Together, the regular tax and the additional tax can total up to 3.8% of your income once you cross the threshold.

Frequently Asked Questions

Does the Medicare Additional Tax threshold change every year?

No. The thresholds have been $200,000 (single), $250,000 (married filing jointly), and $125,000 (married filing separately) since 2013, and they do not adjust for inflation. This means the tax affects more people over time as wages and income grow.

If I earn $205,000, do I pay the tax on all of it or just the $5,000 over the threshold?

Only on the $5,000 over the threshold. The 0.9% tax applies only to income above your filing status threshold, not to your entire income. So you would owe $45 in Medicare Additional Tax on that $5,000.

Can I reduce my Medicare Additional Tax by taking deductions?

No. The tax is based on your modified adjusted gross income (MAGI), which is calculated before most deductions. Standard deductions, itemized deductions, and retirement contributions do not lower the income that counts toward the threshold.

What if I am retired and living on investment income — do I owe this tax?

Not on investment income alone. The Medicare Additional Tax applies only to wages and self-employment income. Capital gains, dividends, interest, and other investment income do not trigger it, no matter how large. However, if you also have W-2 wages or self-employment income, those do count toward the threshold.

Do I owe the Medicare Additional Tax on Social Security benefits?

No. Social Security benefits are not subject to the Medicare Additional Tax. However, if you also have wages or self-employment income, those do count toward the threshold.