In addition to the "normal" 1.45% Medicare tax, some taxpayers are responsible for paying an extra 0.9% Medicare tax. The necessity to pay this tax, which goes by the name "Additional Medicare Tax," is determined by the amount of Medicare wages and net income from self-employment that a taxpayer earns that is more than a threshold that varies according to the person's filing status. The calculations are performed similarly to the tax on income from wages.

The Background of Additional Medicare

The individual health insurance market was reformed due to this two legislation requiring people to get health insurance or face a tax penalty. That piece of legislation included a revenue-raising measure as an extra tax. The Net Investment Income Tax (NIIT), would generate approximately $210 billion in tax revenue over ten years beginning in 2013. This estimate is based on the NIIT and the Additional Medicare Tax, known as the Net Investment Income Tax.

Wages Paid Under Medicare

There are a few key distinctions between the salaries subject to income tax and those subject to Medicare. They are an employee's total salary for the year minus specific benefit deductions such as medical and dental insurance premiums, contributions to health savings accounts, and flexible spending arrangements for dependent care costs. However, these deductions do not lower wages that are subject to Social Security or Medicare taxes.

The Additional Medicare Tax

The ordinary Medicare tax is something that workers and their employers are forced to pay, while the Additional Medicare Tax is exclusively levied on employees. Box 5 of the W-2 form is where earnings paid under Medicare are noted. If a taxpayer's Medicare earnings are higher than these numbers, the taxpayer must pay the Additional Medicare Tax on the amount exceeding the threshold. On earnings over certain criteria, you are required to pay the standard Medicare tax and the "extra" tax.

Examples of Additional Medicare Tax

In his first employment, Albert receives Medicare earnings totaling $150,000 annually. In his second job, he earns Medicare wages totaling $75,000 annually. The sum of all his salaries that Medicare covers are $225,000. Because Albert's total Medicare earnings are more than $200,000, which is the threshold level for a single individual, he will be responsible for paying the Additional Medicare Tax on that amount.

Withholding for the Medicare Tax

Regardless of their tax filing status, everyone must comply with the same threshold. Employees are used to having Medicare taxes deducted from their pay by their employers, and they are also accustomed to having the appropriate amount of Medicare taxes deducted from their salaries. However, the procedures for computing the additional Medicare tax that must be withheld are distinct from the regulations that must be followed to calculate the ordinary Medicare tax. Because of this, an employer can deduct an employee's paycheck, an amount different from the actual tax liability that will eventually be incurred. It is in your best interest to, if at all feasible, calculate in advance how much your Additional Medicare Tax will be and then make arrangements to pay for this tax. You may do this in several different methods, which are as follows:

• Raise the percentage of your paycheck for taxes to account for the additional Medicare contribution.
• Make at least one of the required quarterly tax payments.
• If you are requesting an extension, please include money with your request.
• You are responsible for paying the additional tax when you submit your return.
• The Tax That Is Placed on Earnings from Working for Oneself

The Tax on Combined Types of Income

If you are computing the Additional Medicare Tax on income from wages and self-employment on Form 8959, starting at line 10, you may adjust to account for the additional tax. This adjustment ensures that the Additional Medicare Tax is only computed once on wages and once on self-employment income when those two types of income are combined and the threshold amount is exceeded.

Railroad Retirement Tax Act Compensation

Additionally, the Additional Medicare Tax applies to payments received under the Railroad Retirement Tax Act by workers and employee representatives. Those who have income from wages and those who have income from self-employment are both subject to the same 0.9% tax rate, and both groups are subject to the same threshold levels. The calculations are performed similarly to the tax on income from wages.

The Net Investor Income Tax, which is also known as the "Unearned Income Government healthcare Contribution Tax," is another tax hike that is imposed at a rate of 3.8% when economic profit, combined with other income, outperforms the threshold values that apply to the Supplemental Medicare Tax. These threshold values are the same maximums that apply to the Supplemental Medicare Tax. However, it is only due as a proportion of the investments element of the income; hence, wages and income from self-employment cannot be subjected to the both types of taxation.