Medicare Tax Add-On Explained: Its Nature, Threshold, Mathematics, and Choices
The Medicare tax is a part of the Federal Insurance Contributions Act (FICA) that is collected by the Social Security Administration (SSA) to fund Medicare. This tax consists of a standard Medicare tax and an additional Medicare tax.
The Standard Medicare Tax
The standard Medicare tax applies to all earned income with no minimum income limit. Both employers and employees contribute to this tax. Employers contribute 1.45% for each employee based on their monthly earnings, while they also deduct 1.45% from their employees' earnings. For self-employed individuals, the contribution is 2.9% of their earnings.
The Additional Medicare Tax
The additional Medicare tax of 0.9% applies only to higher wage earners. Introduced in 2013 as part of the Affordable Care Act, this tax is paid in addition to the standard Medicare tax. The thresholds for this tax are:
- Single filers: $200,000
- Married couples filing jointly: $250,000
- Married couples filing separately: $125,000
For example, a single filer earning $220,000 would pay 1.45% on the entire $220,000 plus an additional 0.9% on $20,000 (the amount above $200,000).
Purpose of the Additional Medicare Tax
The additional Medicare tax supports certain aspects of the Affordable Care Act, including the premium tax credit. It also helps lower the cost of Medicare Advantage plans and funds Medicare Part B preventive services such as screenings for various diseases, vaccinations, and expanded chronic care management programs.
Impact on Tax Payments
For a single tax filer earning $300,000, the total Medicare tax payment would be $5,250 in a year. For a married couple with combined total wages of $330,000, the total Medicare tax payment would be $5,505 in a year.
Exceptions and Updates
There are exceptions to taxes due to the coronavirus (COVID-19), and a person can check for the most recent changes on the IRS website. The thresholds for the additional Medicare tax in the 2025 tax year remain the same as they are currently.
Employers do not contribute any amounts through the additional Medicare tax. A self-employed person will pay 2.9% standard Medicare tax and an additional 0.9% Medicare tax, for a total of 3.8%. An employee will pay 1.45% standard Medicare tax and an additional 0.9% additional Medicare tax, for a total of 2.35% of their income.
- The additional Medicare tax, introduced as part of the Affordable Care Act in 2013, supports various aspects of health-and-wellness, such as the premium tax credit and Medicare Part B preventive services for different medical conditions.
- The additional Medicare tax, which is 0.9%, only applies to higher wage earners, with single filers paying this tax if their income exceeds $200,000, married couples filing jointly if their income exceeds $250,000, and married couples filing separately if their income exceeds $125,000.
- The funds from the Medicare tax, both standard and additional, are essential for financing Medicare, health insurance for seniors and certain disabled individuals, and are managed by the Social Security Administration (SSA) under the Federal Insurance Contributions Act (FICA).
