A Form 1040 return with limited credits is one that’s filed using IRS Form 1040 only (with the exception of the specific covered situations described below). The additional Medicare tax helps also helps lower the cost of Medicare Advantage plans and prescription medications. For individuals with a salary above these thresholds, the employer withholds the additional 0.9%.

• An employer must begin withholding Additional Medicare Tax in the pay period in which the wages or railroad retirement (RRTA) compensation paid to an employee for the year exceeds $200,000.
• The new Medicare tax also affects self-employed individuals who earn over a specific amount.
• If you are self-employed, you are responsible for the entire 2.9% share of your earned income for the Medicare tax.
• If you’re wondering how to calculate Medicare tax, the above figures can help you out.
• In other words, the additional Medicare surtax is only assessed on income above that level.

And unlike the other FICA taxes, the 0.9 percent Medicare surtax is not withheld unless wages paid to an employee exceed $200,000. Medicare tax, or “hospital insurance tax,” is a federal employment tax that funds a portion of the Medicare insurance program. Like Social Security tax, Medicare tax is withheld from an employee’s paycheck or paid as a self-employment tax. The number that employees arrive at when they calculate the Additional Medicare Tax on their tax returns may or may not match up with what was withheld from their earnings. An employee is liable for the Additional Medicare Tax even if the employer doesn’t withhold it. Pretax deductions for contributions made by employees to group retirement plans such as 401(k)s can reduce wages that are subject to federal income tax, but they don’t reduce wages subject to Social Security or Medicare taxes.

Married Filing Separate

Specific income thresholds determine eligibility for premium tax credits and subsidies, making healthcare more affordable for lower and middle-income individuals and families. Medicaid expansion, which was also part of the ACA, extended coverage to many low-income individuals and families. If an individual has income from investments, the individual may be subject to net investment income tax.

• To understand how taxes are affected in 2023 by this law, which changed the landscape for healthcare insurance in the United States, it’s important to review the history of taxes under the ACA.
• Since $25,000 is below K’s $200,000 threshold, K does not owe Additional Medicare Tax.
• File a corrected return (e.g., Form 941-X) and make an interest-free adjustment for the amount.
• Catch the mistake in the same year you paid the wages subject to additional Medicare tax?

The tax rate for the Additional Medicare Tax is 0.9 percent. That means you’ll pay 2.35 percent if you receive employment wages. Incomes from wages, self-employment, and other compensation, including Railroad Retirement (RRTA) compensation, all count toward the income the IRS cash disbursement journal measures. To calculate your additional Medicare tax liability, you’ll need Form 8959 when filing for your tax return. The IRS has instructions for Form 8959 available to help you file correctly. If you’re self-employed, you are responsible for paying the full 15.3% FICA tax.

Questions and Answers for the Additional Medicare Tax

Our partners cannot pay us to guarantee favorable reviews of their products or services. Wolters Kluwer is a global provider of professional information, software solutions, and services for clinicians, nurses, accountants, lawyers, and tax, finance, audit, risk, compliance, and regulatory sectors. The total self-employment income is then reduced by multiplying it by 92.35% (essentially deducting the employer’s share of FICA, 7.65%). Total net self-employment income is found on Schedule SE Line 4a. In the next installment of this series, I will focus on long-term care planning. • Join a Medicare Advantage Plan (referred to as a Part C plan).

Where to Go for More Help with Additional Medicare Tax

Unlike Social Security tax, there is no income limit to which Medicare tax is applied. An individual’s Medicare wages are subject to Medicare tax. This generally includes earned income such as wages, tips, vacation allowances, bonuses, commissions, and other taxable benefits. Medicare taxes and Social Security taxes held in trust funds by the U.S. Nearly everyone who works in the U.S. is required to pay Medicare taxes. Under the Federal Insurance Contributions Act (FICA), employers withhold Medicare and Social Security taxes from employees’ paychecks.

About Medicare

Any estimated tax payments that an individual makes will apply to any and all tax liabilities on the individual income tax return (Form 1040 or 1040-SR), including any Additional Medicare Tax liability. In making this determination, you do not consider wages paid by other employers or earnings of the individual’s spouse. Even if your employee is married and the couple’s combined income will not exceed the employee’s $250,000 filing threshold, you still must withhold the additional tax once the employer’s $200,000 withholding threshold is reached.

k) Taxes on Withdrawals and Contributions

• Part A has no premium if you, or your spouse, worked and paid Medicare taxes for at least 10 years. There is, however, a deductible, which changes slightly each year. Medicare or “Original Medicare” is a federal health insurance program created for Americans aged 65 and older and for some younger people with disabilities or certain illnesses.

Attach Forms 4137 and 8959 to your income tax return (Form 1040 or 1040-SR). The Social Security tax (also called OASDI or Old-Age, Survivors, and Disability Insurance) is subject to a dollar limit, which is adjusted annually for inflation. However, there is no annual dollar limit for the 1.45 percent Medicare tax.