Understanding the Medicare Tax for High Earners

The Medicare Contribution Tax

  • 2.9% Medicare tax on wages and net self-employment income.
  • Half of the tax (1.45%) is picked up by the employer and the other half (1.45%) by the employee.
  • Additional 0.9% tax, applies only to the employee’s (or self-employed taxpayer’s) share of the Medicare tax. Applies to wages and self-employment income greater than $200,000 (single), $250,000 (married), or $125,000 (married but filing separately)

 

Tax on Investment Income

  • The 3.8% Medicare tax also applies to most net investment income.
  • Applied to the lesser of net investment income or the excess of modified adjusted gross income (MAGI) over the applicable threshold.
  • Distributions from retirement accounts are exempt—including pensions, 401(k)s, and IRAs—and income generated from municipal bonds.

 

The following types of investment income are affected:

 

  • Taxable interest
  • Capital gains
  • Dividends
  • Nonqualified annuity distributions
  • Royalties
  • Rental income
  • Personal residences with appreciation greater than $250,000 ($500,000 if married)

 

 

To discuss how we can partner with your tax professional, please call us at 682.224.4001.

 

 

This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.

 

 

Brian Bisdorf, ® is a financial advisor with Bisdorf Palmer, LLC at 201 American Concourse, Suite 310. Fort Worth, TX 76106. He offers securities and advisory services as a Registered Representative and Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at 682.224.4001 or at [email protected] 

 

 

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