The Health Care and Education Reconciliation Act created two additional Medicare taxes for high income taxpayers starting after December 31, 2012.
First, the Medicare payroll tax has been increased for individuals making more than $200,000 in wages, $250,000 for married couples filing joint. The current Medicare payroll tax is 2.9% of wages with the employee paying 1.45% and the employer paying the other 1.45%. Under the new law, high-income taxpayers will be assessed an addition 0.9% or at total of 2.35% on their portion of amounts over the high-income thresholds.
This means a single person making $300,000 will pay an additional $900 in Medicare tax. If the person made $1 million the additional Medicare tax would cost $7,200.
For a married couple with wages of $1 million the additional Medicare tax would amount to $6,750.
In addition to the increased Medicare rate, Congress created a new 3.8% Medicare tax on "investment" or "unearned" income. Previously, only wages or earned income was subject to the Medicare tax. The new tax is assessed on high-income taxpayers with unearned income with the same thresholds of $200,000 for individuals and $250,000 for joint filers. The 3.8% Medicare tax is assessed on the lesser of the taxpayer's net investment income or any excess of modified adjusted gross income in excess of the $200,000 or $250,000 thresholds.
If our single taxpayer making $1 million in wages also makes an additional $50,000 in unearned income, their Medicare tax will go up to $9,100 ($7,200 for increased wage Medicare and $1,900 for Medicare on the unearned income).
It is estimated that Congress will increase total tax revenues by $210 billion with the new changes to the Medicare tax. This was part of the revenue raiser to help pay for the health reform.