Additional Medicare Tax - 2018 Rates And Brackets

Under the Affordable Care Act, you may be responsible for paying more towards Medicare. Learn about the Additional Medicare Tax, and how it may affect your financial future.
Edward Neeman
Published on
December 5, 2018
Updated on
January 22, 2024

Medicare is, and always has been, a federally funded and managed healthcare program for the nation’s most vulnerable populations. Medicare is designed for seniors, and also provides for those living on disability who qualify.

As a federal program, Medicare gets all its funding from taxpayer money, and as the population grows and life spans increase, the Medicare tax just wasn’t cutting it anymore. That’s why, under the Affordable Care Act (ACA), it was legislated that certain income thresholds would trigger an added employer withholding known as the Additional Medicare Tax. Here’s what you need to know.

What is the Additional Medicare Tax?

The Additional Medicare Tax was implemented under the Affordable Care Act, and refers to the additional 0.9% employers must withhold from employees once their compensation reaches $200,000 for a calendar year. This tax is in addition to the 1.45% an employer must withhold from employees regardless of their earnings. The additional 0.9% withholdings only begin during the pay period the said employee reaches $200,000 in earnings and will be withheld until the end of the year.

It should be noted that there is no employer share of Additional Medicare Tax. Meaning, employers are not required to contribute money to the Additional Medicare Tax, like they would for most other taxes.

When It Went Into Effect

Additional Medicare Tax went into effect at the start of 2013, so it’s still a relatively young tax. Since the tax began in 2013, it is only applicable to the taxable income you earned starting after December 31, 2012.

Additional Medicare Tax 2018

The current Additional Medicare Tax rate for 2018 has the Social Security tax increase to $128,400, a slightly higher amount than the $127,200 amount from 2017. The Federal Insurance Contributions Act (FICA) imposed that employers, employees, and self-employed workers that are a part of the Old Age, Survivors, and Disability Insurance and Hospital Insurance have two taxes with a certain amount of compensation to the OASDI tax and not for HI. The FICA for employers to expect will be 7.65%—6.2% for OASDI and 1.45% for HI.

Wages Subject To Additional Medicare Tax

In regards to the wages subject for 2018, employers will pay 6.2% of Social Security tax for the very first $128,700 of wages and both 1.45% and 2.35% worth of Medicare tax on the first $200,000 worth of Medicare tax on all wages in excess of $200,000, respectively.

What Are The Threshold Amounts?

The threshold amount is $200K. As previously mentioned above the article, the Medicare Tax is withheld at 1.45%, employees must withhold 0.9% of their Additional Medicare Tax rate with their wages if they earn up to $200K throughout the year. Even in regards to the threshold amounts, employer share is not available for the Additional Medicare Tax rate

How To Calculate Your Additional Medicare Tax

Calculating the Additional Medicare Tax rate will be difficult for those that are unaware of how their income tax liability or they are either having wages subject to the Federal Insurance Contributions Act tax or self-employment income subject to Self-Employment Contributions Act (SECA) tax. Despite the confusing process to newcomers of tax rates in general, it can still be achievable as long as they can follow along with what elements of their calculations they're supposed to work on.

Everyone is required to calculate their tax liability with their income tax returns with form 8959. Their employers should withhold their taxes on their income tax returns as well. all tax withholds get applied against the taxes made for every payer. If anyone has wages that are subject to the likes of programs such as the Federal Insurance Contributions Act tax and Self-Employment Contributions Act tax. Here is how they should calculate their liabilities:

  • First, all individuals should calculate their AMT on whatever wages they have in excess. This is especially crucial for the calculations when the wages are in an excess that is part of an applicable threshold, even when there is no clear regard that a tax can already be withheld.
  • Once that is done, the next thing to do is to decrease the filing status applicable threshold to the entire amount of Medicare wages that each individual was given; Applicants should not lessen the amount around or below the number zero.
  • The last step in calculating the tax liabilities requires that the AMT is to count up the AMT with any income that is labeled as ‘self-employment’ when it is in excess of the reduced threshold.

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