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Posted by Tiffany Gaskin

Exploring The Additional Medicare Tax (0.9%)

Exploring The Additional Medicare Tax (0.9%)

The Additional Medicare Tax has been enacted since 2013, which affects taxpayers that make more than 200,000 USD or 250,000 USD as married couples. This set of people will pay an extra 0.9% on their Medicare tax. 

The idea behind this extra tax is to fund the elements of the Affordable Care Act. 

The Additional Medicare Tax is an extra payment of 0.9% as tax alongside the basic Medicare tax. This tax applies to taxpayers whose income rises above a certain threshold. People in such an income bracket will have the extra tax withheld by their employer and sent to Uncle Sam.

Explaining the Additional Medicare Tax 

All employed taxpayers must remit their Medicare tax to the Social Security Administration. 1.45% of all workers' earnings will be remitted to the FICA (Federal Insurance Contributions Act). Employers also pay an additional 1.45%, which amounts to 2.9% of a worker's total earnings. People that are self-employed will have to pay the full 2.9%.

In 2013, there was a new rule in which taxpayers with income above a certain level will pay extra to Medicare. These additional charges were made available as a section of the Affordable Care Act called the Additional Medicare Tax.

The tax rate for this was placed at 0.9%. The implication of this is that everyone who got employment wages will pay 2.35%. Self-employed taxpayers will pay a total of 3.8%. The following are the IRS measures: wage income, self-employment income, and others like Railroad Retirement (RRTA) compensation. 

The calculation for the Additional Medicare Tax

The additional Medicare tax only applies to people at a particular income level. These level for the 2020 tax year are set as follows: 

  • The single taxpayer – 200,000 USD and above

  • Married filing jointly – 250,000 USD and above

  • Married filing separately – 125,000 USD and above

  • Head of the household – 200,000 USD and above

  • A widow with a dependent kid that qualifies – 200,000 USD and above

The employer's responsibility is to withhold the extra 0.9% from all their workers who meet the threshold specified above. For people with income from other sources that will send them over the limit, it is essential to request your employer to withhold the amount from their pay. This also applies to self-employed people as they must withhold the said amount in their tax payment for the year. 

In filing taxes, it is essential to calculate the additional Medicare Tax liability for the same year. There are cases you could owe more while you might have overpaid in other cases. Any refund adjustment or payment owed will be included with the overall amount required or refund.

The tax rate will apply to all extra amounts that are above the limit. In other words, your additional tax will only apply to what is above the threshold. For instance, let us consider Jake, a single taxpayer with a total income of 280,000 USD. Jake will pay the regular 1.45% on the first 200,000 USD and an extra 2.35 on the 80,000 USD left. In this example, Jake will pay a total of 4,780 USD as Medicare tax for the year.

What does the Extra Medicare Tax Serve?

The idea behind the extra Medicare tax is to help fund some part of the Affordable Care Act, which includes many features like the premium tax credit. The Affordable Care Act makes beneficiaries of the Medicare act enjoy other perks like:

  • Reduced cost of prescription

  • Access to a free vaccine

  • Seizure of the “donut hole” –benefit gap Part D

  • Access to free care services aimed at prevention

  • Opportunity for free screenings for diabetes, depression, heart issues, and some cancers

  • A better management plan for Chronic cases

The idea behind the Additional Medicare Tax is to cushion the cost of various benefits of Medicare. 

Is this Tax Compulsory to Everyone on Medicare?

Everyone must send some money to Medicare as Tax. However, the extra tax only applies to people at or over a certain income threshold. People that are less than the limit will not have to pay the additional tax. 

People who have their income around the limit can avoid the tax by employing the pre-taxed deductions like:

  • Health savings accounts (HSA)

  • Retirement accounts

  • Flexible spending accounts (FSA)

The standard 1.45% is, however, compulsory for all taxpayers. 



Tiffany Gaskin
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