Medicare Surtax

What is the Medicare surtax?

The Medicare surtax, also called the additional Medicare tax, is a 0.9% tax on wages and self-employment income above $200,000 for single filers or $250,000 for married couples filing jointly. This tax applies on top of the regular Medicare tax. High-earning service firm owners often owe this additional tax on their business income, increasing their effective tax rate on income above the threshold.

How the Medicare surtax applies

For employees, the surtax applies to wages exceeding the threshold. Employers must withhold once individual wages pass $200,000, regardless of filing status. Self-employed individuals pay the surtax on Schedule SE income above the threshold. S corporation shareholders pay on their W-2 wages from the S corp. Unlike regular Medicare tax, there is no employer match on the surtax portion.

Planning around the Medicare surtax

The surtax only applies to earned income, not investment income. However, high earners often face the net investment income tax on investment income. The combined effect increases taxes on all income types above the thresholds. Some planning strategies shift income between years or between spouses to manage threshold exposure. Discuss your specific situation with your tax advisor.