The 0.9 Percent Additional Medicare Tax Explained
Who pays the extra Medicare tax on wages and self-employment income, why employer withholding often misses it, and what S corporation owners avoid.
Reviewed by the Fairlight Accounting cross-border tax team — U.S. & Canadian Tax Desks
The Additional Medicare Tax is a 0.9 percent tax on wages, self-employment income, and railroad retirement compensation above $200,000 for single filers, $250,000 for married couples filing jointly, and $125,000 for married filing separately. The thresholds are fixed, not indexed. Employers withhold it only on wages above $200,000, so couples and self-employed people often owe more at filing.
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How does it work?
| Filer | Threshold | What counts |
|---|---|---|
| Single, head of household, qualifying surviving spouse | $200,000 | Combined wages and self-employment income |
| Married filing jointly | $250,000 | Both spouses' wages and self-employment income combined |
| Married filing separately | $125,000 | The filer's own wages and self-employment income |
Regular Medicare tax is 1.45 percent on all wages, matched by the employer, or 2.9 percent for the self-employed. The additional 0.9 percent has no employer match and no cap.
Why is withholding often wrong?
An employer must start withholding the extra 0.9 percent once an employee's wages from that employer exceed $200,000 in the year, regardless of filing status or a spouse's income. Two spouses each earning $150,000 have no withholding but owe the tax on $50,000 of combined wages. Someone with $150,000 of wages from each of two jobs has the same gap and, as a single filer, owes the tax on $100,000. The difference is paid with the return or through estimated taxes or extra withholding on Form W-4.
How is it calculated for the self-employed?
Self-employment income is added to wages. The threshold is first applied to wages; the remainder of the threshold applies to self-employment income. Self-employment losses do not reduce wages for this purpose. The tax is figured on Form 8959 and carried to Schedule 2 of Form 1040 as part of total tax.
What do S corporation owners avoid?
Distributions from an S corporation are not wages or self-employment income, so they are outside both the regular and additional Medicare tax. Only the owner's salary is subject to it — one more reason reasonable compensation is examined closely.
Is it deductible?
No. Unlike the employer share of self-employment tax, the additional tax is not deductible.
Frequently asked questions
Can I ask my employer to withhold more for it?
Not specifically for this tax, but you can request additional income tax withholding on Form W-4, which is credited against everything on your return, including the additional Medicare tax.
Do retirement contributions reduce the wages it applies to?
Pre-tax 401(k) deferrals do not reduce Medicare wages. Health insurance premiums paid through a cafeteria plan do.
Does the net investment income tax also apply to wages?
No. The two surtaxes are separate: the 0.9 percent applies to earned income, the 3.8 percent to investment income.
Is there a penalty for underpaying it?
The usual estimated tax penalty rules apply if total payments fall short of the safe harbors.
Official sources
The IRS explains: “An employer is responsible for withholding the Additional Medicare tax from wages or railroad retirement (RRTA) compensation it pays to an employee in excess of $200,000 in a calendar year, without regard to filing status.” — Internal Revenue Service, Topic no. 560, Additional Medicare tax, https://www.irs.gov/taxtopics/tc560
The IRS explains: “Use this form to figure: the amount of additional Medicare tax you owe and the amount of additional Medicare tax withheld by your employer, if any.” — Internal Revenue Service, About Form 8959, Additional Medicare Tax, https://www.irs.gov/forms-pubs/about-form-8959
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