Additional Medicare Tax

What it means

The government adds an extra 0.9% tax to your income if you earn a high salary. This is known as the Additional Medicare Tax. It is separate from the standard Medicare tax you pay on every paycheck.

This tax applies when your total yearly earnings exceed $200,000 if you are single, or $250,000 if you are married and filing taxes together. Income from your Restricted Stock Units (RSUs) or Non-Qualified Stock Options (NSOs) counts toward these limits.

A simple example

Imagine Sarah is single and earns $150,000 in base salary. Later in the year, she earns $100,000 from selling her stock. Her total income is now $250,000. Because she is over the $200,000 limit, she owes the 0.9% tax on the $50,000 that went over the threshold. That equals $450 in extra tax.

Why it matters to you

• Your company will automatically take this tax out of your paycheck once your earnings from that specific employer go over $200,000.
• If you have more than one job or a spouse with a high income, your company might not withhold enough tax. You may need to pay more when you file your tax return.
• You can ask a tax professional to help you check if you are paying the right amount.

Common mistakes to avoid

• Assuming your company is taking out the right amount if you have two jobs. Each company only tracks what it pays you, not your total household income.
• Forgetting that stock income counts as wages. It can push your total income high enough to trigger this tax even if your base salary is low.

Words used on this page

• Restricted Stock Unit (RSU): A gift of company stock that you earn over time.
• Non-Qualified Stock Option (NSO): A right to buy company stock at a set price, which is taxed as regular pay.
• Withholding: Money taken out of your paycheck by your employer to pay your taxes in advance.
• Threshold: The dollar limit that determines when a specific tax rule begins to apply to you.