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0.9% Additional Medicare Tax on Wage and Self-Employment Income

Starting in 2013, high-income taxpayers will face new taxes a 0.9% additional Medicare tax on wage and self-employment income. Here's an overview of the new taxes and what they will mean to you.

Additional 0.9% Medicare tax on wage and self-employment income. Starting in 2013, some high wage earners will pay an extra 0.9% Medicare tax on a portion of their wage income, in addition to the 1.45% Medicare tax that all wage earners pay. The 0.9% tax applies to wages in excess of $250,000 for joint filers, $125,000 for a married individuals filing separately and $200,000 for all others. The 0.9% tax applies only to employees, not to employers.

For joint filers, the additional tax applies to the spouses' combined wages. For example, suppose that a married couple earns combined wages of $300,000 in 2013. On a joint return, they will pay Medicare tax of $3,625 ($250,000 × 1.45%) on their first $250,000 of wages and $1,175 on their combined wages the excess of $250,000 ($50,000 × 2.35%), for a total Medicare tax of $4,800.

Once an employee's wages reach $200,000 for the year, the employer must begin withholding the additional 0.9% tax from the wages. However, this withholding may prove insufficient if the employee has additional wage income from another job or if the employee's spouse also has wage income. To avoid that result, an employee may request extra income tax withholding by filing a new Form W-4 with the employer. The extra withholding can then be applied to the liability for the additional 0.9% tax.

Self-employment tax. An extra 0.9% Medicare tax also applies to self-employment income for the tax year in excess of $250,000 for joint filers, $125,000 for married individuals filing separately and $200,000 for all others. This 0.9% tax is in addition to the regular 2.9% Medicare tax on all self-employment income. The $250,000, $125,000, and $200,000 thresholds will be reduced by the taxpayer's wage income.

While self-employed individuals can claim half of their self-employment tax as an income tax deduction, the additional 0.9% tax won't generate any income tax deduction.