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The 0.9% Medicare Surtax on Earned Income

Two new taxes were included in the Affordable Care Act enacted in 2010, but didn't go into effect until 2013. One of these is the 0.9% Medicare surtax on earned income. Both new taxes are designated as Medicare taxes, but none of the funds generated by these provisions are earmarked for Medicare or health care purposes. While the type of income subject to these new taxes is different, there is some overlap in the definition of taxpayers subject to these new taxes.

Unlike the 3.8% tax on net investment income, this tax applies to wages and self-employment income. The income thresholds are the same as the tax on net investment income: $250,000 for couples filing jointly, $125,000 for those married filing separately and $200,000 for other filers. The surtax applies only to the employee's portion of the Medicare tax. There is no increase to the employer-paid portion, but employers are required to withhold the surtax once an employee's wages exceed $200,000 in a calendar year.

Caution: If filing jointly, each spouse could earn less than the $200,000 threshold and have no extra withholding on their wages during the year, however, if their combined wages exceed the $250,000 threshold on their tax return, they will pay the surtax owed at tax time. On the other hand, if one spouse's wages are over $200,000 and the employer withholds the additional tax, but the other spouse earns less than $50,000, then any extra surtax withheld would be credited on their tax return.

Return to the Affordable Care Act of 2010 page.

"Tax software is no substitute for tax knowledge."

Any views expressed herein are based on our best information. The content of this web site was written as general information without specific individual information and thus may not apply in all situations. This material was not written, and cannot be used by the taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer.

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Janelle Ogg, EA
Richard Ogg, EA