Why is there additional Medicare tax?

The IRS implemented the additional Medicare tax in 2013 as part of the Affordable Care Act. The tax only applies to people with income above a certain level.
The IRS implemented the additional Medicare tax in 2013 as part of the Affordable Care Act. The tax only applies to people with income above a certain level.
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When the Affordable Care Act passed in 2010, people made a lot of fuss about the tax repercussions. Many Americans were surprised to see that some of those taxes weren't even showing up on returns until years later, after the act made its way through the Supreme Court to final approval.

So some folks got a bit of a shock in 2013 when they filed their taxes and found that -- on top of the usual Medicare withholding -- they were now responsible for an additional Medicare tax that only applied to a select few.

This Medicare tax is a little bit different from others, and deserves its designation as "additional." Traditionally Medicare tax is applied to each worker (in the form of withholding from an employee's paycheck or a self-employment tax), but the additional Medicare tax applies to the combined income or earnings of a couple [source: Pear].

That's not to say that some single people don't have to pay it. But it means that it depends on the total earnings of your household, and not your individual responsibility. And the good news for most folks is that it's a tax on higher income people. You're not responsible for the additional Medicare tax unless you (or you and your spouse) make over a certain amount of money.

How much exactly? Well, the additional Medicare tax is a 0.9 percent tax on any wages over $200,000 for a single person or $250,000 for a married couple filing jointly. This means a few things. One, your employer is going to withhold that 0.9 percent tax if you make over $200,000. Period. But that might mean you get a refund if you make, say, $215,000 and your spouse doesn't bring in income.

On the other hand, if you both make $200,000, you're not going to get any tax automatically withheld -- but you'll still have to pay that 0.09 percent tax on $150,000, since it's over the $250,000 limit for married couples filing jointly. Unfortunately, you can't just ask an employer to withhold the additional Medicare tax automatically [source: IRS]. You can make estimated payments on the tax, or you could request additional withholding in general on your paycheck, through a W-4.

As you might have guessed, the additional Medicare tax is designed so wealthier Americans help to pay for the cost of insurance and medical care for lower-income citizens. But if you're looking to learn more about the additional Medicare tax and what it might mean for you, check out the IRS site for lots of details.

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  • Internal Revenue Service (IRS). "Questions and answers for the additional Medicare tax." June 24, 2014. (Oct. 23, 2014. (Oct. 23, 2014) http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Questions-and-Answers-for-the-Additional-Medicare-Tax
  • Pear, Robert. "New Taxes to take effect to fund health care law." The New York Times. Dec. 8, 2012. (Oct. 23, 2014) http://www.nytimes.com/2012/12/09/us/politics/new-taxes-to-take-effect-to-fund-health-care-law.html?_r=0

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