The Additional Medicare Tax is a surtax imposed on high-income earners to help fund the Medicare program. It applies to wages, compensation, and self-employment income that exceed certain thresholds. The tax rate is 0.9%, and it is mandated under the Affordable Care Act (ACA) to ensure that the Medicare program remains financially sustainable.
Applicability and Thresholds
The Additional Medicare Tax is applied to individuals whose earnings exceed the following thresholds:
- $250,000 for married taxpayers filing jointly
- $125,000 for married taxpayers filing separately
- $200,000 for single filers or head of household
- $200,000 for qualifying widow(er) with a dependent child
Example: If an individual filing as single earns $250,000 in wages in a given year, the Additional Medicare Tax applies to the $50,000 that exceeds the $200,000 threshold.
How It Works
Employer Withholding
Employers are required to withhold the Additional Medicare Tax from an employee’s wages as soon as they surpass the $200,000 threshold, irrespective of the employee’s filing status or other income.
Employee Responsibility
If an employee has multiple jobs or additional income sources, they may be liable for the Additional Medicare Tax on a cumulative basis. Taxpayers must report and pay any Additional Medicare Tax due over the withheld amount when they file their federal income tax returns.
Self-Employment Income
For self-employed individuals, both the Medicare tax and the Additional Medicare Tax are calculated on net earnings from self-employment exceeding the applicable threshold.
Calculations
For employed taxpayers, the tax is calculated as:
Example: If a single filer has $220,000 in wages:
For self-employed individuals, the Additional Medicare Tax is calculated similarly but considers net self-employment income.
Historical Context
The Additional Medicare Tax was introduced as part of the Affordable Care Act (ACA) in 2013. It is aimed at increasing revenues for the Medicare Hospital Insurance (HI) Trust Fund to ensure its longevity and ability to meet the growing healthcare demands of an aging population.
Comparisons and Related Terms
FICA Taxes
The Additional Medicare Tax is in addition to the regular Medicare tax under the Federal Insurance Contributions Act (FICA), which applies at a 1.45% rate on all wages without a cap.
Net Investment Income Tax (NIIT)
Another Medicare-related surtax introduced by the ACA is the Net Investment Income Tax (NIIT), which imposes an additional 3.8% tax on investment income for high earners.
Frequently Asked Questions
Is the Additional Medicare Tax deductible?
No, unlike some other taxes, the Additional Medicare Tax is not deductible on your federal income tax return.
Will I receive a refund of the withheld Additional Medicare Tax if I don’t owe it?
If an excess amount was withheld due to the Additional Medicare Tax, you can claim a refund when you file your federal income tax return.
Are there any credits to offset the Additional Medicare Tax?
No, there are no tax credits specifically designed to offset the Additional Medicare Tax.
References
- Internal Revenue Service (IRS). “Additional Medicare Tax.” IRS Website
- Affordable Care Act (ACA), Public Law 111-148.
Summary
The Additional Medicare Tax is a targeted surtax on high earners to assist in funding Medicare, ensuring its sustainability for future beneficiaries. Understanding the applicability, calculations, and historical context of this tax helps taxpayers navigate their financial responsibilities effectively.
