8657 / What is the additional Medicare tax? Who is liable for paying the additional Medicare tax?

In spite of its name, the tax revenue generated by the additional Medicare tax is not specifically earmarked for the Medicare fund. Similar to the regular Medicare tax, the additional Medicare tax is imposed only on individual taxpayers (see Q 8658 for a discussion of an employer’s obligation to withhold the additional Medicare tax). Thus, entities such as C corporations, trusts and estates are not subject to the tax.¹

The applicable thresholds for the additional Medicare tax (not adjusted for inflation) are the sum of the taxpayer’s earned income (wages and/or self-employment income) in excess of the following amounts:

(1)  $250,000 for married taxpayers filing jointly;

(2)  $125,000 for married taxpayers filing separate returns; and

(3)  $200,000 for single taxpayers and heads of households.²

Planning Point: The tax base of the additional Medicare tax and the net investment income are mutually exclusive. To this point, the additional Medicare surtax is imposed on earned income whereas the net investment income tax is imposed on investment income. This means that a taxpayer cannot be subject to both additional taxes on the same income.³ If income could be included in both tax bases, it will be included in the Medicare tax base.

1.  IRC § 3101(b)(2).

2.  IRC § 3101(b)(2).