What You Should Know about the Additional Medicare Tax

Starting in 2013, you may be liable for an Additional Medicare Tax if your income exceeds certain limits.  Here are six things that you should know about this tax:  

1.  The Additional Medicare Tax is 0.9 percent.  It applies to the amount of your wages, self-employment income and railroad retirement (RRTA) compensation that is more than a threshold amount.  The threshold amount that applies to you is based on your filing status.  If you’re married and file a joint return, you must combine your spouse’s wages, compensation, or self-employment income with yours to determine if you exceed the “married filing jointly” threshold.

2.  The threshold amounts are:

 Filing Status                                        Threshold Amount
 Married filing jointly                                          $250,000
 Married filing separately                                   $125,000
 Single                                                                  $200,000
 Head of household                                            $200,000
 Qualifying widow(er) with dependent child    $200,000

3.  You must combine wages and self-employment income to determine if your income exceeds the threshold.  You do not consider a loss from self-employment when you figure this tax.  You must compare RRTA compensation separately to the threshold.  See the instructions for Form 8959, Additional Medicare Tax, for examples.

4.  Employers must withhold this tax from your wages or compensation when they pay you more than $200,000 in a calendar year, without regard to your filing status, wages paid to you by another employer, or income that you may have from other sources.  Your employer does not combine the wages for married couples to determine whether to withhold Additional Medicare Tax. 

5.  You may owe more tax than the amount withheld, depending on your filing status and other income.  In that case, you should make estimated tax payments /or request additional income tax withholding using Form W-4, Employee's Withholding Allowance Certificate.  If you had too little tax withheld, or did not pay enough estimated tax, you may owe an estimated tax penalty.  For more on this topic, see Publication 505, Tax Withholding and Estimated Tax.

6.  If you owe this tax, file Form 8959, with your tax return.  You also report any Additional Medicare Tax withheld by your employer on Form 8959.