Additional Medicare Tax for High Income Taxpayers

Income Tax Service

Terry Hough

May 07, 2013 Newsletter

Additional Medicare Tax for Some Taxpayers

Beginning in 2013, the additional Medicare tax will apply to individuals with wage income, other compensation, and/or self-employment income that exceed the following threshold amounts:

$250,000 for Married Filing Jointly
$125,000 for Married Filing Separately
$200,000 for taxpayers that file Single, Head of Household, or Qualifying Widow(er).

The additional Medicare tax is calculated as 0.9% of the total of wages, other compensation, and self-employment income that is in excess of the taxpayer's threshold amount.

For self-employed taxpayers, the Medicare portion of their self-employment tax will be calculated as follows:

Net self-employment income up to the taxpayer's threshold amount will be taxed at the regular Medicare tax rate of 2.9%.
Amount over the threshold amount will be taxed at the additional Medicare tax rate of 3.8%.

For those taxpayers that receive more than $200,000 in wages from their employer, the employer is required to withhold 0.9% of their wages over $200,000.

All other taxpayers that this new tax applies to can request an additional amount be withheld from their wages, or increase their estimated tax payments for Tax Year 2013 to ensure that they do not incur an underpayment penalty.

A taxpayer that is affected by the additional Medicare tax will calculate the additional tax on a new 2013 Federal form. The additional tax will be included in the Other Taxes section of Form 1040.

Other things to note about this tax:

For married couples, the applicable income for both spouses is combined to determine if the additional Medicare tax applies. Married couples whose combined income exceeds the threshhold should be careful to have sufficient withholding or estimated tax for Tax Year 2013 to ensure that they do not incur an underpayment penalty.
For self-employed individuals, this tax is not used in calculating the deductible portion of self-employment tax on Form 1040, line 27.

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