Additional Medicare Tax 2025 in the USA: What High Earners and Employers Must Know

Learn how the Additional Medicare Tax affects high-income earners in the USA. Understand thresholds, employer rules, self-employed requirements, and IRS Form 8959.

Tax season can be stressful, especially for high earners. Just when you think you’ve covered everything, a lesser-known tax like the Additional Medicare Tax can catch you off guard. Like the Net Investment Income Tax (NIIT), this tax was introduced under the Affordable Care Act (ACA) and specifically targets individuals and households above certain income limits. If your income goes beyond a certain threshold, this surtax could be quietly taking a bite out of your paycheck without you realizing it. 

In this guide, we’ll explain what the Additional Medicare Tax is, how it differs from your regular Medicare tax, who it affects, and what you can do to manage it.

What Is Medicare Tax? 

Medicare tax is a federal employment tax that helps fund Medicare Part A. This part of Medicare covers hospital visits, hospice care, nursing facilities, and some home healthcare for people aged 65 or older, or those with certain medical conditions. 

In 2024, the Medicare tax rate is 1.45% for employees and another 1.45% paid by employers, totaling 2.9%. If you're self-employed, you are responsible for the full 2.9% under the Self-Employed Contributions Act (SECA). 

Unlike Social Security tax, there’s no income cap. This means all your earned income is subject to Medicare tax, no matter how high it gets. 

The Additional Medicare Tax 

To help fund Medicare expansion, the Affordable Care Act (ACA) introduced two surtaxes in 2013: 

·         The NIIT on investment income 

·         The Additional Medicare Tax on high earned income   

The Additional Medicare Tax is a 0.9% surtax that applies once your income exceeds the following thresholds: 

If you're single and earn $225,000, the first $200,000 is taxed at the regular 1.45% Medicare rate, and the remaining $25,000 is subject to an additional 0.9%.

Who Pays Additional Medicare Tax? 

If your earned income, including wages, bonuses, commissions, or self-employment income exceeds the threshold for your filing status, you are responsible for the Additional Medicare Tax. There’s no employer match for this 0.9%, it’s all on you. 

If you're self-employed, you calculate and pay it as part of your self-employment taxes. For W-2 employees, your employer starts withholding it once your wages exceed $200,000, regardless of your filing status. This can sometimes lead to: 

·         Over-withholding if you're married filing jointly and don’t actually hit $250,000 as a couple. 

·         Under-withholding if two high-earning spouses each earn below $200,000 but together exceed $250,000. 

How Additional Medical Tax is Different from the Regular Medicare Tax

The regular Medicare tax is deducted from everyone’s paycheck, regardless of income level. However, the Additional Medicare Tax only starts when you hit those high-income limits. 

Self-Employed? Here's What to Watch Out For

If you're self-employed, you're treated as both employer and employee. This means you’re responsible for: 

·         The full 2.9% Medicare tax, plus 

·         The 0.9% Additional Medicare Tax on any earned income above the threshold 

Unlike employees, you don’t have automatic withholding. So, it’s up to you to: 

·         Calculate the amount owed 

·         Make estimated tax payments throughout the year 

·         Use Schedule SE and Form 8959 to report and pay it 

What Employers Need to Know 

If you're an employer, you need to: 

·         Start withholding the 0.9% surtax once any employee’s wages exceed $200,000 

·         Withhold regardless of filing status or other income 

·         Report it correctly, but you don’t reconcile it—the employee handles that on their annual tax return 

There’s no employer match for this surtax, unlike the standard Medicare tax. 

How to Plan for the Additional Medicare Tax

A little tax planning can help a lot. Here’s how you can stay ahead: 

Adjust Your Withholding

Use Form W-4 to make sure the right amount is withheld if you’re close to the income threshold especially if you’re married and both spouses’ work. 

Coordinate Income Timing 

If you're a dual-income household near $250,000, consider timing bonuses, stock options, or contract work to stay under the threshold for a given year. 

Max Out Pre-Tax Benefits

Contribute to: 

·         401(k) or 403(b) plans 

·         Health Savings Accounts (HSA) 

·         Flexible Spending Accounts (FSA) 

These can lower your taxable wages, which may keep you under the surtax line. 

Track Self-Employment Income Diligently 

Be proactive about tracking your business expenses and income. Consider working with a tax professional to ensure you're estimating and paying the right taxes quarterly, this includes the 0.9%. 

Conclusion: Don’t Let This Tax Sneak Up on You

The Additional Medicare Tax may have a small percentage, but for high-income earners, it can add up quickly especially if you’re not ready. Whether you’re an employee, a business owner, or somewhere in between, understanding how this tax works can help you manage your tax liability and avoid surprises. 

If you have questions or need help planning around it, contact our tax professionals at Water & Shark who can guide you in making the right moves.

Frequently Asked Question:

1.       Who has to pay the Additional Medicare Tax?
Anyone with earned income above IRS thresholds—$200,000 for singles, $250,000 for joint filers—is required to pay the 0.9% surtax.

2.      Is the Additional Medicare Tax withheld by employers?
Yes, employers must withhold it once an employee’s wages exceed $200,000, regardless of the employee's filing status.

3.      Do self-employed individuals pay the Additional Medicare Tax?
Yes, self-employed individuals are responsible for the full 2.9% Medicare tax plus the 0.9% surtax on income above the threshold.

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