The Medicare surtax is an extra 0.9% tax on wages and self-employment income above a certain threshold, plus a 3.8% tax on investment income for higher earners
The Net Investment Income Tax (NIIT) and the Additional Medicare Tax are two separate levies that went into effect in 2013. They explore only to people whose income exceeds specific thresholds — thresholds that do not change from year to year. In 2024, if you earn wages above $200,000 (single) or $250,000 (married filing jointly), you owe an extra 0.9% Medicare tax on the amount above that threshold. If your investment income is substantial, you may also owe 3.8% on certain gains and interest.
These taxes were created to help fund Medicare. They are separate from the regular 1.45% Medicare tax that comes out of every paycheck. Most people do not hit these thresholds, but if you work past 65, own a business, or have significant investment income, you should know how they work.
Key Takeaways
- The Additional Medicare Tax of 0.9% applies to wages and self-employment income over $200,000 (single) or $250,000 (married filing jointly) in 2024.
- The Net Investment Income Tax of 3.8% applies to investment income (interest, dividends, capital gains, rental income) if your total income exceeds the same thresholds.
- Employers withhold the wage surtax automatically if you earn over the threshold, but you may owe the investment tax when you file your return.
- If you are married filing separately, the threshold drops to $125,000, and the rules become more complex.
- These thresholds have not changed since 2013 and do not adjust for inflation each year.
How the Additional Medicare Tax on Wages Works
If you receive W-2 wages — money from an employer — and your total wages for the year exceed $200,000 (or $250,000 if married filing jointly), you owe 0.9% on the excess. Your employer is required to withhold this tax once your wages cross $200,000 in a calendar year, regardless of your filing status or other income.
The withholding happens automatically. You will see it on your pay stub labeled as "Additional Medicare Tax" or "Medicare Surtax." If you have two jobs and both employers withhold the tax, you may end up overpaying — but you can claim a credit when you file your tax return to get the overage back.
Self-employed people pay both the employee and employer portion of this tax (1.8% total) on net self-employment income above the threshold. You calculate this on Schedule SE when you file your return.
How the Net Investment Income Tax Works
The 3.8% Net Investment Income Tax applies to investment income — not wages. This includes interest, dividends, capital gains, rental income, and income from partnerships or S corporations. The tax kicks in if your total income (wages plus investment income) exceeds $200,000 (single) or $250,000 (married filing jointly).
Unlike the wage surtax, this tax is not withheld by your bank or brokerage. You owe it when you file your return. If you have significant investment income, your tax preparer or the IRS may flag this during filing. The tax applies only to the investment income portion, not to your wages.
Real estate professionals and people who actively trade stocks may owe this tax even if their total income is modest, because the IRS counts rental and trading income as investment income for this purpose.
Income Thresholds That Have Not Changed Since 2013
The thresholds for both taxes are fixed at $200,000 (single), $250,000 (married filing jointly), and $125,000 (married filing separately). These numbers do not adjust for inflation each year the way some other tax brackets do. That means more people creep into the surtax range as wages and investment returns grow over time.
If you are close to the threshold, it is worth tracking your income during the year. If you expect to cross it, you can plan ahead — for example, by timing the sale of investments or deferring a bonus to the next year if your employer allows it.
Who Is Most Likely to Owe These Taxes
High-income workers, business owners, and retirees with substantial investment portfolios are the most common payers. People who continue working past 65 and collect Social Security at the same time often hit the wage threshold. Couples with combined income from pensions, part-time work, and investment accounts frequently owe the investment surtax.
You do not have to be wealthy to owe these taxes in a high-cost-of-living area. A couple in their late 60s with one person earning $180,000 and the other earning $100,000 from part-time work, plus $30,000 in dividends, would owe both taxes. The thresholds are income-based, not asset-based, so even modest investment returns can push you over if your wages are high.
How to Report These Taxes on Your Return
If your employer withheld the Additional Medicare Tax, it will appear on your W-2 in box 6. You report it on Form 8959 (Additional Medicare Tax) when you file. If you are self-employed, you calculate it on Schedule SE and transfer it to Form 8959.
The Net Investment Income Tax goes on Form 8960. You will need to list your investment income sources — interest statements (1099-INT), dividend statements (1099-DIV), capital gains (Schedule D), and rental income (Schedule E). If you use a tax preparer, give them all your 1099 forms and let them know your total income for the year.
If you overpaid the wage surtax because you had two jobs, Form 8959 will calculate the credit you can claim. The investment tax cannot be overpaid in the same way, but if you owe it, you pay it with your return.
Planning Ahead If You Are Close to the Threshold
If your income is within $20,000 or $30,000 of the threshold, a few moves may help. Married couples can sometimes reduce their adjusted gross income by maximizing contributions to traditional IRAs, HSAs, or 401(k) plans — though rules vary by age and income. If you are self-employed, timing business income and deductions can shift when you cross the line.
Retirees who are deciding when to claim Social Security should know that Social Security income counts toward the surtax threshold. Delaying your claim by a few years can lower your income in earlier years and may help you avoid or reduce the surtax.
These strategies require planning with a tax professional who knows your full situation. The surtax is not avoidable once you owe it, but the timing of income and deductions can sometimes shift which year you owe it.
Frequently Asked Questions
Do I owe the surtax if I am retired and only have investment income?
Yes, if your investment income (interest, dividends, capital gains, rental income) exceeds $200,000 (single) or $250,000 (married filing jointly), you owe the 3.8% Net Investment Income Tax on the excess. Social Security income does not count toward this threshold, but pension income and distributions from retirement accounts do.
What if I work part-time and my employer did not withhold the surtax?
If your total wages for the year exceed the threshold but your employer did not withhold, you will owe the tax when you file your return. This sometimes happens with part-time jobs or when you change employers mid-year. Form 8959 will calculate what you owe, and you pay it with your return.
Does the surtax explore to Roth IRA withdrawals?
No. Withdrawals from Roth IRAs do not count as income for surtax purposes. However, withdrawals from traditional IRAs, 401(k)s, and other pre-tax retirement accounts do count as income and can push you over the threshold.
Can I avoid the surtax by spreading income across two years?
Sometimes. If you have control over when you receive income — for example, if you are self-employed or can time the sale of an investment — you may be able to defer income to the next year. However, once income is earned, the surtax applies in that year. A tax professional can advise whether timing strategies make sense for your situation.
Is the surtax the same as regular Medicare tax?
No. Regular Medicare tax is 1.45% on all wages (2.9% if self-employed). The surtax is an additional 0.9% on wages above the threshold, plus a separate 3.8% tax on investment income. Together, high earners pay up to 3.8% in Medicare-related taxes on investment income and up to 2.35% on wages.