Medicare Tax Limit: Rates, Thresholds, and Investment Surtax

There is no Medicare tax limit on wages. Every dollar you earn is subject to the base 1.45 percent Medicare tax, and your employer pays a matching 1.45 percent.¹ What does have limits are the two higher-income layers that sit on top: an extra 0.9 percent Additional Medicare Tax on earned income above a filing-status threshold, and a separate 3.8 percent Net Investment Income Tax that uses the same thresholds. None of those threshold amounts are indexed for inflation, which is why they keep pulling in more households each year.

Why the Base Medicare Tax Has No Cap

The Social Security portion of payroll taxes stops at a yearly earnings ceiling, which is $184,500 for 2026.² Medicare works differently. The IRS states it plainly: all covered wages are subject to Medicare tax, with no wage base limit.¹

Medicare originally shared the Social Security earnings ceiling. Congress eliminated the Medicare cap entirely through the Omnibus Budget Reconciliation Act of 1993, effective January 1, 1994.² Since then, someone earning $50,000 and someone earning $5 million both pay Medicare tax on every dollar of wages. The combined employee-plus-employer rate is 2.9 percent. Railroad workers covered under the Railroad Retirement Tax Act pay the same 1.45 percent on all earnings.

The Additional Medicare Tax Thresholds

Starting in 2013, the Affordable Care Act added a 0.9 percent surcharge on wages above a threshold that depends on how you file:³

Married filing jointly: $250,000 of combined wages
Single or head of household: $200,000
Married filing separately: $125,000

These dollar amounts are written into the statute with no inflation adjustment mechanism, and they have not moved since 2013.³ Wage growth alone pushes more households past the line each year.

For an employee above the threshold, the total Medicare tax rate is 2.35 percent on the portion above (1.45 percent base plus 0.9 percent surcharge). The employer still pays only 1.45 percent. There is no employer match on the extra 0.9 percent.⁴

How Employer Withholding Handles the Threshold

Your employer uses a single trigger: whether the wages it has paid you so far this year exceed $200,000. Once your cumulative pay crosses that line, the employer begins withholding the extra 0.9 percent and continues through December 31. This happens regardless of your filing status or your spouse’s income.⁵

The flat $200,000 trigger creates mismatches in both directions. A single filer earning $210,000 sees withholding that matches what they owe. Someone married filing separately with a $125,000 threshold will come up short, because the employer waits until $200,000. And a married couple filing jointly with one spouse earning more than $200,000 but combined income under $250,000 can end up over-withheld.

You reconcile the difference on IRS Form 8959 when you file your return. Any excess withholding becomes a credit against your tax; any shortfall becomes tax due.⁶

Two-Earner Households

The common gap hits dual-income couples filing jointly. If each spouse earns $180,000, neither employer withholds the surcharge, because neither paycheck crosses $200,000. Their combined wages total $360,000, which is $110,000 over the $250,000 joint threshold. They owe 0.9 percent on that overage ($990), with nothing withheld during the year.⁷

If this is you, raise withholding on a W-4 or make estimated tax payments through the year to avoid a bill at filing.

Self-Employment Medicare Tax

Working for yourself means paying both sides: the 2.9 percent combined Medicare rate on all net self-employment income, with no cap. The 0.9 percent surcharge applies the same way once your net self-employment earnings (combined with any wages) exceed the threshold for your filing status.⁸

You can deduct the employer-equivalent portion of your self-employment tax when calculating adjusted gross income. That deduction lowers income tax; it does not reduce the self-employment tax itself.⁹

Nobody is withholding on your behalf, so you make quarterly estimated payments that include the Medicare tax. If payments fall short, the IRS charges an underpayment penalty on the shortfall for each quarter. You report and reconcile the Additional Medicare Tax on Form 8959, which attaches to your Form 1040.⁶

If you earn both wages and self-employment income, wages count first toward the threshold. Any wages already subject to the surcharge reduce the threshold applied to self-employment income, so the same dollars are not taxed twice.⁸

The 3.8 Percent Tax on Investment Income

Alongside the surcharge on earned income, high earners face a separate 3.8 percent Net Investment Income Tax. It is not a Medicare tax in the strict payroll sense, but it uses the identical thresholds and was enacted in the same legislation, so it belongs in any discussion of Medicare-related income limits.

The 3.8 percent applies to the lesser of your net investment income or the amount by which your modified adjusted gross income exceeds the threshold for your filing status:¹⁰

Married filing jointly: $250,000
Single or head of household: $200,000
Married filing separately: $125,000

Investment income counted here includes interest, dividends, capital gains, rental and royalty income, and income from passive business activities.¹⁰ Wages, self-employment earnings, and distributions from most retirement plans are not investment income for this purpose. These thresholds are also not indexed. You calculate and report the tax on IRS Form 8960, attached to your return.¹¹

Combined Rates for 2026

All earners: 1.45 percent employee Medicare tax on every dollar of wages, with a matching 1.45 percent from the employer
Wages above the filing-status threshold: an added 0.9 percent employee-only tax, bringing the employee rate to 2.35 percent on the amount above³
Self-employed: 2.9 percent on all net earnings, plus 0.9 percent above the threshold⁸
Investment income above the threshold: 3.8 percent on net investment income¹⁰

None of these rates have changed since they took effect, and the thresholds have not moved either. As incomes rise, more taxpayers cross the lines each year, which is the practical reason to know where they sit.

1
Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates
2
Social Security Administration. Contribution and Benefit Base
3
Office of the Law Revision Counsel. 26 USC 3101 – Rate of Tax
4
Internal Revenue Service. Topic No. 560, Additional Medicare Tax
5
Office of the Law Revision Counsel. 26 USC 3102 – Deduction of Tax From Wages
6
Internal Revenue Service. Instructions for Form 8959
7
Internal Revenue Service. Questions and Answers for the Additional Medicare Tax
8
Office of the Law Revision Counsel. 26 USC 1401 – Rate of Tax
9
Internal Revenue Service. Self-Employment Tax (Social Security and Medicare Taxes)
10
Office of the Law Revision Counsel. 26 USC 1411 – Imposition of Tax
11
Internal Revenue Service. Instructions for Form 8960