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As the 2025 tax season approaches, many high-income earners may find themselves subject to the Additional Medicare Tax, a provision that applies to individuals and households earning above certain income thresholds.
This 0.9% tax was created under the Affordable Care Act (ACA) to help fund healthcare initiatives and remains an important part of the tax system today.
Understanding whether you will owe this tax - and how it's calculated - is essential for financial planning, especially for those who receive wages, self-employment income, or railroad retirement compensation.
Who Owes the Additional Medicare Tax in 2025?
The Additional Medicare Tax applies to Medicare wages, self-employment income, and railroad retirement (RRTA) compensation once a taxpayer's income sures the following thresholds:
- $250,000 for married couples filing tly
- $125,000 for married individuals filing separately
- $200,000 for single filers, heads of household, and qualifying widowers
Any income above these limits will be taxed at an additional 0.9% rate. Notably, this tax has no wage base limit, unlike Social Security taxes that cap earnings subject to taxation.
How Is the Tax Calculated?
Calculating the Additional Medicare Tax involves a few key steps:
- Apply the 0.9% tax to Medicare wages that exceed the income threshold for the taxpayer's filing status.
- Reduce the threshold by Medicare wages received when calculating the tax on any self-employment income.
- Ignore self-employment losses for the purpose of this tax - only positive income counts.
For those with RRTA compensation, that income is compared separately against the threshold. Employers are required to withhold the tax once an employee earns more than $200,000 annually, regardless of their marital status.
What Else Should Taxpayers Expect in 2025?
Employers must start withholding the Additional Medicare Tax in any pay period where an employee's earnings cross the $200,000 mark and continue withholding until the end of the year.
There is no employer match for this tax. Taxpayers must report this tax using Form 8959, filed along with Form 1040 or Form 1040-SR. For those with self-employment income, Form 1040-SS may be required.
If you expect to owe this tax and worry about insufficient withholding, you may adjust your W-4 to increase your tax withholding or make estimated tax payments throughout the year to avoid underpayment penalties, as advised in Publication 505, Tax Withholding and Estimated Tax.
Whether you're a U.S. citizen living abroad or a nonresident alien, no exemptions apply. If you earn income subject to Medicare tax and it exceeds the threshold, you must pay the Additional Medicare Tax.
How This Tax Works with Other Federal Taxes
In addition to the Additional Medicare Tax:
- Social Security tax remains at 6.2% for employers and employees (up to a wage base limit of $176,100 for 2025).
- Medicare tax is 1.45% for each party, with no wage cap.
- The Additional Medicare Tax is layered on top of the standard Medicare tax only for income above the threshold.
Since there is no cap on Medicare-taxable income, high earners need to be proactive in understanding their total tax liability. Withholding accuracy and proper tax reporting will ensure compliance and prevent unexpected bills at tax time.
For more details, taxpayers should review Publication 15 (Circular E) and the Instructions for Form 8959 to ensure they're following all current guidelines.