Social Security and Medicare are funded in large part through payroll taxes imposed by the Federal Insurance Contributions Act or “FICA.” FICA imposes a tax of 15.3% on “wages,” which is paid by the employer and by employees, each party paying half. Before 2013, the employer portion of the tax (the so-called “hospital insurance” or “HI” portion) was 1.45% and the employee portion was also 1.45%. 1 The Patient Protection and Affordable Care Act (the “Act”) imposes an additional tax — referred to as the “Additional Hospital Insurance Tax on High- Income Taxpayers and Unearned Income” or, simply the “Additional Medicare Tax” — that increases the employee portion of the HI tax by 0.9% of wages on workers with incomes of over $200,000 for single filers and $250,000 for joint filers effective for taxable years commencing after December 31, 2012.

Employers are responsible for withholding the Additional Medicare Tax. The tax is also levied on self-employed individuals whose incomes exceed the specified thresholds. (Self employed individuals are not permitted to deduct this additional tax as a business expense.) Liability for the Additional Medicare Tax is on the employee only — there is no employer match.