Skip to main content

The Additional Medicare Tax and Your Tax Return

Alert: This Additional Tax Will Surprise You at Tax Time: 

Surprise, you owe more than you expected.  It can be disturbing when expectations are not met especially when it means more money out of your pocket.  That can happen this year due to the Additional Medicare Tax.

The Additional Medicare Tax:

The Additional Medicare Tax is an additional tax or surtax on your wages, compensation or self-employment income that exceed certain thresholds.  The thresholds are:
  • $250,000 for couples filing jointly
  • $200,000 for individuals, even individuals filing Head of Household, and Qualified Widows
  • $125,000 for married persons filing separately
The tax is an additional .9% on qualified wages, compensation or self-employment income.

Employers are required to withhold the additional .9% from wages it pays to an individual in excess of $200,000 in a calendar year, without regard to the individual's filing status or wages paid by another employer.

Your Surprise:

Since employers are only required to withhold the surtax on your wages that exceed $200,000 you could wind up owing more than was withheld.  This could be the case if you had more than one source of qualified income.  It could also be the case for married couples filing jointly who are over the $250,000 threshold. 

For example, if a married couple filing jointly each make $200,000 then no additional tax would be withheld from their wages but they would owe the additional .9% tax on the amount of their income over $250,000 which would be $150,000 in their case and the additional tax would be $1,350.  Surprise!!!!

Or an individual filing a "Single" return could have income from one job of $200,000 and another $200,000 from another job or active partnership and he would owe the additional tax on $200,000 and the additional tax would be $1,800.  Surprise!!!!

What can you do?

We are too late in the game to have your employer withhold additional income taxes for you.  So there are a few options you have if you are just now aware of the surprise.  First, you could make an estimated tax payment for the fourth quarter which is due January 15th.  Second, you could prepare now to pay the additional tax when you file your tax return and send the payment on April 15th.


  • Note that wages from an S-Corporation are subject to the surtax but not Shareholder Distributions.  
  • Tips are also subject to the additional tax.
  • Non-resident aliens and U.S. citizens living abroad are subject to the Additional Medicare Tax.

This can be a complex tax matter that I would be happy to assist you with as your CPA.  I would be happy to discuss different strategies for this situation with you.

Jeff Haywood, CPA
The CPA Superhero
The above information is general information and is not all inclusive and as always in your tax situation everything "depends on facts and circumstances."  So call me to talk about your specific facts and circumstances.

Popular posts from this blog

The Dreaded IRS Audit...The Reality

Updated May 31, 2018

There is a fear of an IRS audit.  People have heard all kinds of stories and have many ideas about what will cause an audit and how to avoid it.  For example some fear that taking a deduction that they are entitled to will make them the target of an IRS audit.  I have also heard clients say both that filing on time will prevent an audit and also that filing an extension will avoid an audit.  So what is the reality of IRS audits.  

Who gets audited and why
The IRS audits aroud 1% of tax returns they receive.  That sounds like random selection but there are things that increase your chances of selection.  Ordinary taxpayers with ordinary income and deductions if audited are usually just a random and very unlikely selection.  In fact none of my cleints that can be described this way have ever been randomly selected for an audit.  Most audits are triggered by the unusual or areas of suspect by the IRS.  The IRS itself indicates there are randomly selected audits but m…

Who Is Watching Your Business? Someone Is. Hopefully It Is You.

Who Is Watching Your Business A few employees from the office went out together for dinner and a movie. It was interesting when the charges at a local restaurant and movie theater showed up on the next business credit card bill. It was reported to me as suspicious and I took it to the owner. Upon investigation it looked like the employees from the office had charged their night out on a company credit card. But how did they do that? Had the owner given them permission? No, he had not. It was discovered that one of the accountants had, without authorization, requested an additional credit card which she used for personal expenses.

Later, at tax time, a local tax-preparer called to ask about an employee's W-2. I could not give information about an employees salary but the preparer found two things interesting. One, some one from the firm I worked for would come to him to have their taxes done rather than have them done in house. Second, the salary and of course the taxes withheld s…

Year End Tax Moves to Reduce Business Profits

Here are some tax planning strategies to help you reduce profits for the year and thus reduce the taxes you will pay you. (Keep in mind if you want to accelerate profit into this year do the opposite of the strategies listed below)

Delay Revenue If your business is an accrual basis tax reporting business delay sending out invoices until next year. For a cash basis tax reporting business delay receipt of income. You may need to call people you have already invoiced to request that they make sure you don't receive their payment before the year end. In reality they can send you a payment before year end and you could receive it after year end so this could benefit both you and your clients/customers.

Accelerate Expenses On the Expense side for an accrual basis tax reporting business make sure you enter all the bills you receive before year-end and make sure they are dated this year. For a cash basis tax reporting business pay as many bills by year-end as possible. If cash is tight m…