Understanding the Additional Medicare Tax

According to a provision of the Affordable Care Act that took effect in 2013, employers are responsible for withholding an additional Medicare tax from certain employees' wages. Employers must withhold an additional 0.9% from employees’ wages if they exceed $200,000 in a calendar year, regardless of the employee’s filing status. There is no employer match for the additional Medicare tax.

An employee may owe more or less than the withholding, depending on their filing status. The threshold amounts are:
* $200,000 for single filers
* $250,000 for married couples filing jointly
* $125,000 for married couples filing separately

If an employee will owe more than the withholding, he or she should make estimated tax payments and/or request additional withholding on their W-4. Any discrepancy between the amount withheld and the amount due will be reconciled on the employee’s personal income tax return. Either way, the employer is still responsible for withholding on wages exceeding $200,000.

All wages that are currently subject to Medicare taxes are subject to the additional Medicare tax, including tips and non-cash compensation such as fringe benefits. The tax is also applicable to self-employment income. Learn more about this tax from the IRS Additional Medicare Tax Q&A page.

*Learn more about this tax and other 2014 compliance changes by watching Paycor's Compliance Updates Webinar