Is the 0.9% Additional Medicare Tax for high earners calculated on gross wages, AGI, or taxable income?

Thanks for the clear explanation! So just to confirm, if my W-2 Box 5 (Medicare wages) shows $202,000, I'd pay the extra 0.9% only on the $2,000 above the threshold, right? Not the full amount?

That's exactly right. You would only pay the additional 0.9% Medicare tax on the amount exceeding the threshold. So in your example, if your Medicare wages are $202,000, you would pay the additional 0.9% only on the $2,000 that's above the $200,000 threshold, which would be $18 extra. Your regular Medicare tax of 1.45% applies to the full $202,000, but the additional 0.9% only applies to the amount over the threshold. This is why it's called an "additional" tax rather than a higher rate on the full amount.

Does it actually give you planning advice for specific tax situations like this? I've been using TurboTax but they're not great at the planning aspect, especially for these threshold issues.

I'm skeptical about these online tax tools. How does it actually access your real tax info? Seems like it would need personal details that I'm not comfortable sharing with random websites.

Yes, it does provide planning strategies based on your specific situation. For the Medicare tax threshold specifically, it showed me how much of my income would be subject to the additional tax and calculated different scenarios based on potential year-end bonuses or extra income. Regarding security concerns, I was hesitant at first too. The platform uses bank-level encryption and you can choose what documents to upload. You don't have to connect any accounts directly - I just uploaded my last W-2 and a recent paystub to get the analysis. They explain their security measures pretty clearly on their site.

How does this service actually work? Do they just stay on hold for you or something? I've never heard of anyone being able to "skip the line" for IRS calls.

This sounds like BS to me. No way some third-party service has special access to the IRS. They're probably just charging people to do what anyone could do themselves - wait on hold.

They use an automated system that waits on hold with the IRS for you. Once they reach a human agent, they call you and connect you directly to that agent. It's not skipping the line - you're still in the same queue as everyone else, but you don't have to be the one listening to hold music for hours. I was skeptical too at first, but it worked exactly as described. No special access needed - they're just handling the waiting part for you. After trying to get through for three days on my own with no luck, getting a callback within a few hours was absolutely worth it.

That's a really good point! My spouse makes about $45k, so our combined would be around $245k even if I go over the $200k individually. Does that mean the additional tax wouldn't apply to us since we'd still be under the $250k threshold for joint filers?

That's correct! If your combined Medicare wages are around $245k, you'd still be under the $250k threshold for married filing jointly, so the additional 0.9% Medicare tax wouldn't apply to either of you. However, there's one thing to watch out for: your employer doesn't know your filing status or your spouse's income, so they'll start withholding the additional Medicare tax if your wages from that employer exceed $200k. You'd get that withholding back when you file your taxes, but it could affect your cash flow throughout the year.

Are you sure about the HSA reducing Medicare wages? I thought HSA contributions were still subject to FICA taxes (both Social Security and Medicare).

You're absolutely right to question that! I made an error - HSA contributions through payroll deduction are indeed subject to FICA taxes, including Medicare tax. They reduce your federal income tax but NOT your Medicare wages. The HSA contribution would only avoid FICA taxes if you make it directly to your HSA provider (not through payroll deduction), but then you lose the payroll tax savings entirely. So for someone trying to stay under the Additional Medicare Tax threshold, HSA contributions through payroll won't help. Thanks for catching that mistake!

This is really helpful advice about bonus timing! I'm actually single, so the $200k threshold definitely applies to me. The bonus deferral strategy makes a lot of sense - even if it's just a few thousand dollars that pushes me over, that 0.9% on the excess amount could add up quickly. Do you know if there are any rules about how far into the next year a bonus can be deferred, or is that just up to the employer's policies?

This is exactly the kind of detailed guidance I was looking for! I had no idea about the constructive receipt rules or that there might be earlier deadlines like November 1st for deferral elections. I'm definitely going to reach out to HR this week to see what our company's policies are. Given that I'm expecting around $198,500 in regular wages, even a relatively small bonus of $3,000-4,000 would put me over the threshold and trigger that additional 0.9% tax on the excess. If I can defer even part of it to 2025, that could save me a meaningful amount. Thanks for the practical advice!

That's such an important point about equity compensation! I hadn't even thought about RSUs or stock options counting toward the Medicare wage threshold. It's frustrating that those are harder to control timing-wise compared to regular bonuses. For someone like me who's already close to the threshold with just regular wages, any unexpected equity vesting could really throw off my tax planning. Do you know if there are any strategies for managing the tax impact of RSU vests, or is it pretty much just "plan to pay the extra tax" once they vest?

@67554d9ce462 Unfortunately, with RSUs there aren't many options to control the timing since the vesting schedule is usually set by your company. However, there are a few strategies worth considering: 1. Some companies allow you to sell shares immediately upon vesting to cover taxes, which can help with cash flow planning even if it doesn't reduce the Medicare tax liability. 2. If you know RSUs are vesting in 2024, you could potentially reduce other income sources (like deferring that bonus we discussed earlier) to make room under the threshold. 3. Make sure you're having adequate taxes withheld or making estimated payments, since employers sometimes under-withhold on equity compensation. 4. If you have multiple RSU vesting dates throughout the year, you might be able to work with your company to consolidate them into a single year to better manage which tax year you exceed the threshold. The key is just being aware of all your income sources when doing threshold planning - equity compensation can definitely be a surprise if you're not tracking it!