- The Additional Medicare Tax has been in effect since 2013.
- Taxpayers who make over $200,000 or $250,000 for married couples are subject to an additional 0.9 percent tax on Medicare.
- The Additional Medicare Tax goes toward funding features of the Affordable Care Act.
The Additional Medicare Tax is an extra 0.9 percent tax on top of the standard tax payment for Medicare. The additional tax has been in place since 2013 as a part of the Affordable Care Act and applies to taxpayers who earn over a set income threshold.
If you’re subject to this tax, your employer can withhold it from your paychecks, or you can make estimated payments to the IRS throughout the year.
Medicare is paid for by taxpayer contributions to the Social Security Administration. Workers pay 1.45 percent of all earnings to the Federal Insurance Contributions Act (FICA). Employers pay another 1.45 percent, for a total of 2.9 percent of your total earnings. Self-employed people pay the entire 2.9 percent on their own.
As of 2013, new IRS rules require taxpayers who earn above a set income level to pay more into Medicare. The extra tax was announced as part of the Affordable Care Act and is known as the Additional Medicare Tax.
The tax rate for the Additional Medicare Tax is 0.9 percent. That means you’ll pay 2.35 percent if you receive employment wages. Self-employed taxpayers will pay 3.8 percent. Incomes from wages, self-employment, and other compensation, including Railroad Retirement (RRTA) compensation, all count toward the income the IRS measures.
The Additional Medicare Tax applies to people who are at predetermined income levels. For the 2020 tax year, those levels are:
- Single tax filers: $200,000 and above
- Married tax filers filing jointly: $250,000 and above
- Married tax filers filing separately: $125,000 and above
- Head of household tax filers: $200,000 and above
- Qualifying widow(er) tax filers with a dependent child: $200,000 and above
Employers are required to withhold the additional 0.9 percent for employees with salaries that are at or over these income limits. If you have income from other sources that will put you over that limit, you can request that your employer withhold this amount from your checks. Self-employed taxpayers who are at or over the limits need to include this calculation in their estimated tax payments for the year.
When you file taxes, you’ll calculate your Additional Medicare Tax liability for the year. In some cases, you might owe more, and in other cases, you might have paid too much. Any payment owed or refund adjustment needed will be added to your overall required payment or refund amount.
You’ll be taxed on the amount you make that is above the threshold. You’ll only pay the additional tax on amounts above that limit. For example, if you’re a single tax filer with an employment income of $250,000, you’d pay the standard 1.45 percent on $200,000 of your income, and then 2.35 percent on the remaining $50,000. So, in this example, you’d pay $4,075 in Medicare taxes for the year.
The Additional Medicare Tax helps to fund some elements of the Affordable Care Act. This includes the premium tax credit and other features. Notably, the Affordable Care Act provided some additional benefits to Medicare enrollees, including:
- lowered premiums for Medicare Advantage plans
- lowered prescription drug costs
- closure of the Part D benefit gap, or “donut hole”
- inclusion of free vaccines
- inclusion of free preventative care services
- inclusion of free screenings for depression, heart disease, diabetes, and some cancers
- increased chronic care management programs
The Additional Medicare Tax helps supplement the cost of these new Medicare benefits.
While everyone pays some taxes toward Medicare, you’ll only pay the additional tax if you’re at or above the income limits. If you earn less than those limits, you won’t be required to pay any additional tax. If your income is right around the limit, you might be able to avoid the tax by using allowed pre-tax deductions, such as:
- flexible spending accounts (FSA)
- health savings accounts (HSA)
- retirement accounts
But you’ll still need to pay the standard 1.45 percent. There is no income limit on the standard Medicare tax amount.
Help for your taxes if you’re on Medicare
- Taxpayer Assistance Centers (TACs). TACs are staffed with volunteers to help answer your questions.
- Tax Counseling for the Elderly (TCE). TCE centers are available to provide free tax preparation. Call 888-227-7669 or use the IRS locator to find a local center.
- Volunteer Income Tax Assistance (VITA). If you don’t have a local TCE, you may have a nearby VITA center, which also provides free tax help. Call 800-906-988 or use the IRS locator to find help near you.
- The Additional Medicare Tax helps fund some of the features of the Affordable Care Act. The regulation has been in place since 2013.
- Everyone who earns income pays some of that income back into Medicare.
- The standard Medicare tax is 1.45 percent, or 2.9 percent if you’re self-employed. Taxpayers who earn above $200,000, or $250,000 for married couples, will pay an additional 0.9 percent toward Medicare.