For the 2025 U.S. federal tax year, a single taxpayer earns $250,000 in wages from one employer. Under IRC Section 3101(b)(2), how does the Additional Medicare Tax apply to this wage income?
- The employer must withhold the 0.9% Additional Medicare Tax on the entire $250,000 of wages, not just the amount over $200,000
- The employer must withhold an additional 0.9% Medicare tax only on wages paid in excess of $200,000, resulting in extra withholding on $50,000 of wages
- No Additional Medicare Tax applies because the 0.9% surtax is only assessed on self-employment income, not on employee wages
- The employer must match the employee's 0.9% Additional Medicare Tax withholding with an equal employer-paid contribution
Why B? And why not the others?
Correct answer: B. The employer must withhold an additional 0.9% Medicare tax only on wages paid in excess of $200,000, resulting in extra withholding on $50,000 of wages
IRC Section 3101(b)(2) imposes an Additional Medicare Tax of 0.9% on wages paid in excess of $200,000 in a calendar year, and employers are required to withhold that extra amount only on the portion of wages above that threshold, which here is $50,000 ($250,000 minus $200,000). The option applying the 0.9% rate to the full $250,000 is wrong because the surtax reaches only wages above the $200,000 withholding threshold, not the entire wage amount; the regular 1.45% Medicare tax, by contrast, applies to all wages without a ceiling. The option claiming the surtax applies only to self-employment income is wrong because the Additional Medicare Tax applies to wages, self-employment income, and railroad retirement compensation alike; wage earners are squarely covered. The option describing an employer match is wrong because, unlike the regular 1.45% Medicare tax which the employer matches dollar-for-dollar, the Additional Medicare Tax is withheld from the employee's wages only and has no corresponding employer-paid share.
Source: IRS, 2025 Instructions for Form 8959, Additional Medicare Tax; IRS, 'Questions and Answers for the Additional Medicare Tax'