Additional Medicare Tax 2026: Form 8959, Rent, REIT and K-1 Income
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Quick Answer
The 0.9% Additional Medicare Tax is a tax on work income, not on investment income: it applies to Medicare wages, railroad retirement (RRTA) compensation and self-employment income above $250,000 on a joint return, $125,000 for married filing separately and $200,000 for everyone else. As of October 22, 2026, IRS Tax Topic 560 (last reviewed October 9, 2026) still lists those three amounts, and the Form 8959 instructions say they “aren’t indexed for inflation.” Rent from a passive rental, REIT and BDC dividends, a limited partner’s K-1 share and the gain on a sale are not wages or self-employment income, so the 0.9% does not reach them (26 U.S.C. 1402(a)(1), (2), (3) and (13)); the 3.8% net investment income tax does, and the IRS says the two never fall on the same dollar. What does reach you: a salary, a 1099 consulting profit, a general partner’s K-1 box 14 income, and flipping profit held for sale. Your employer withholds only on wages above $200,000, so a couple with two $190,000 salaries has nothing withheld and owes $1,170 on $380,000 (our arithmetic). IRS data for 2023: 7,660,835 returns paid $15.76 billion, up from 2,815,530 and $6.27 billion in 2013, and withholding covered only 73.7% of it (our arithmetic on SOI Publication 4801).
Key Takeaways
- The tax: 0.9% of Medicare wages plus self-employment income above $250,000 (joint), $125,000 (married filing separately) or $200,000 (single, head of household, qualifying surviving spouse). Wages and self-employment income are combined, a self-employment loss is ignored, and RRTA compensation is compared with the threshold on its own (Instructions for Form 8959, 2025).
- Investment income is outside it. Rentals from real estate are excluded from self-employment income unless received as a real estate dealer, stock dividends are excluded, a limited partner’s distributive share is excluded except guaranteed payments for services, and gain on a capital asset is excluded (26 U.S.C. 1402(a)(1), (2), (3), (13)). The 3.8% tax on that income is a separate tax on Form 8960.
- The two taxes do not overlap. The IRS Questions and Answers say the section 1411 tax “is not applicable to wages, RRTA compensation, or self-employment income”, and the Form 8960 instructions list income subject to self-employment tax as excluded income. Each dollar is in one tax or the other.
- The threshold for self-employment income is reduced by your wages, to a floor of zero (26 U.S.C. 1401(b)(2)(B)). On a joint return with a $230,000 salary and $60,000 of net self-employment profit, the tax is $318.69, not the $360.00 you get by skipping the 92.35% step (our arithmetic).
- Withholding is a floor, not the amount owed. Employers must withhold on wages above $200,000 from that employer, regardless of filing status; nobody withholds when two spouses earn $190,000 each, and you cannot designate an estimated payment for this tax (Instructions for Form 8959).
- IRS Statistics of Income: 7,660,835 returns paid $15.76 billion for 2023, 172.1% more returns than in 2013, with an average of $2,057. Returns with AGI of $1 million or more were 7.4% of payers and paid 44.9% of the tax; withholding on wages was $11.62 billion of the $15.76 billion (our arithmetic on SOI Table 3.3 and Publication 4801).
CSV · 205 rows
Additional Medicare Tax and Form 8959: thresholds, the income types it reaches, IRS Statistics of Income returns and amounts 2013-2023, Form 8959 line items for 2023, and worked examples
205 rows: 17 rows of thresholds, statute and form facts, 80 rows of IRS SOI Table 3.3 national series for tax years 2013 to 2023 (Additional Medicare Tax and net investment income tax, with our ratios), 35 rows by size of AGI for 2023, 25 rows of Form 8959 line items from Publication 4801, 24 rows on which income types are reached, 8 IRS worked examples and 16 rows of our own arithmetic.
Which of your income the 0.9% reaches, and which it skips
The 2025 Instructions for Form 8959 say the tax applies to “your Medicare wages, Railroad Retirement Tax Act (RRTA) compensation, and self-employment income above a threshold amount.” That is a closed list. So the question for an investor is whether a dollar is wages or self-employment income, and the statute that defines self-employment income, 26 U.S.C. 1402(a), excludes most of what a real estate portfolio pays. The table runs twelve kinds of income through both taxes.
| Income | 0.9% Additional Medicare Tax | 3.8% NIIT (Form 8960) | Where it sits, and the rule |
|---|---|---|---|
| W-2 wages (Medicare wages, box 5) | Yes, above the threshold | No: wages are excluded income | Form 8959 Part I; Form 8960 instructions, excluded income |
| Consulting or business profit (1099-NEC, Schedule C) | Yes, on 92.35% of net profit | No: income subject to self-employment tax is excluded | Schedule SE line 6 to Form 8959 line 8; threshold reduced by wages |
| General partner or managing member K-1, box 14 code A | Yes | No on the part subject to self-employment tax | Schedule SE; Instructions for Schedule SE (2025), partnership income |
| Limited partner K-1: ordinary income, rent, dividends | No, except guaranteed payments for services actually rendered | Generally yes | 26 U.S.C. 1402(a)(13); Form 8960 line 4a |
| Passive rental income (Schedule E) | No | Yes, unless a non-passive trade or business | 26 U.S.C. 1402(a)(1) excludes rentals; Form 8960 line 4a |
| Rental with substantial services (hotel-type, Schedule C) | Yes, it can be self-employment income | Not on the part subject to self-employment tax | Publication 527 (2025); Schedule SE |
| REIT and BDC dividends | No | Yes, as dividends | 26 U.S.C. 1402(a)(2); Form 8960 line 2 |
| Gain on the sale of a rental, including recapture | No, unless the property was held primarily for sale to customers | Yes, on taxable gain | Instructions for Schedule SE; Form 8960 line 5a |
| Profit from a house held primarily for sale (a flip) | Yes, as a real estate dealer | Not on the part subject to self-employment tax | 26 U.S.C. 1402(a)(1) and (a)(3); Schedule SE |
| Roth conversion, IRA or 401(k) distribution | No: not wages or self-employment income | No, but the amount raises your AGI and so your MAGI | Form 8960 instructions: qualified plan distributions excluded; line 13 starts from AGI |
| Social Security benefits | No: not wages or self-employment income | No: listed as excluded income | Form 8960 instructions, excluded income |
| Home-sale gain excluded under section 121 | No | No | Form 8960 instructions: gain not taxable by reason of section 121 |
Sources: Instructions for Form 8959 (2025); 26 U.S.C. 1401, 1402 and 3101 (U.S. Code, 2024 edition, Government Publishing Office); Instructions for Schedule SE (Form 1040) (2025); Publication 527 (2025); Instructions for Form 8960 (2025). The dealer and flip rows are our reading of the statute applied to a fact pattern. For the 3.8% side, see our net investment income tax guide.
Three rows deserve a closer look, because the top search results do not cover them.
- Rental that “rises to a trade or business” is not self-employment income. Some explainers suggest that an active landlord moves rent into self-employment income. The statute does the opposite: 1402(a)(1) says “there shall be excluded rentals from real estate and from personal property leased with the real estate” unless received in the course of a trade or business as a real estate dealer. Active management, even real estate professional status, does not change that. The exception is a service business: Publication 527 says that if you provide substantial services primarily for the tenant’s convenience, such as regular cleaning or changing linen, you report on Schedule C and “may have to pay self-employment tax”. Our short-term rental guide and rental income guide cover the facts line.
- Limited partners are out, general partners are in. Section 1402(a)(13) excludes “the distributive share of any item of income or loss of a limited partner, as such”, other than guaranteed payments for services. The Schedule SE instructions say whether a partner counts as a limited partner “depends on whether the partner is considered a limited partner under section 1402(a)(13).” Box 14, code A of the K-1 is where self-employment earnings appear; see our K-1 box guide. We have not tested how that rule applies to a limited liability company member; ask the sponsor what the box 14 amount means.
- A flip can be self-employment income. The Schedule SE instructions exclude gain on the sale of property “unless the property is stock in trade or other property that would be includible in inventory, or held primarily for sale to customers in the ordinary course of the business.” That is the same line our house flipping guide draws for the income tax, and our Social Security earnings test guide shows it counts there too.
The same $270,000, taxed three ways
The mix of income, not the total, decides which tax you pay. Take a single filer with $270,000 and compare four mixes (our arithmetic, using the thresholds and the Form 8959 lines; Schedule SE line 6 is 92.35% of net profit).
| Single filer, $270,000 of income | Additional Medicare Tax (0.9%) | NIIT (3.8%) | Total of the two |
|---|---|---|---|
| All W-2 wages | $630 = 0.9% of $70,000 over $200,000; the employer withholds it | $0 | $630 |
| $180,000 of wages plus $90,000 of passive rent and REIT dividends | $0: wages are under $200,000 and rent and dividends are not wages | $2,660 = 3.8% of the lesser of $90,000 and the $70,000 over $200,000 | $2,660 |
| $270,000 net profit from a 1099 business | $444.11 = 0.9% of ($249,345 - $200,000) | $0 | $444.11 |
| $180,000 of wages plus $90,000 of general partner K-1 box 14 code A income | $568.04 = 0.9% of ($83,115 - $20,000); wages cut the threshold to $20,000 | $0 on the self-employment income | $568.04 |
Our arithmetic. Rates and thresholds from the Instructions for Form 8959 (2025) and Form 8960 (2025); the 3.8% figure uses the lesser-of rule in the Form 8960 instructions. Taxable income, the half-of-self-employment-tax deduction and other adjustments are ignored.
Two readings. First, the investment mix costs about four times the all-wage mix, because $90,000 sits under a 3.8% tax and $0 under the 0.9% (our arithmetic). Second, the IRS puts it flatly in its Questions and Answers: “The tax imposed by section 1411 on an individual’s net investment income is not applicable to wages, RRTA compensation, or self-employment income.” A reader who adds the 0.9% and the 3.8% to the same dollar has double counted.
The deduction runs only one way, too: 26 U.S.C. 164(f)(1) allows a deduction for half of the self-employment taxes “other than the taxes imposed by section 1401(b)(2)”, so the 0.9% itself is not deductible.
How Form 8959 works: the five parts
The form has 24 lines in five parts, and the tax carries to Schedule 2 (Form 1040), line 11 (2025 instructions).
| Part | Lines | What it does |
|---|---|---|
| I, Medicare wages | 1 to 7 | Adds Form W-2 box 5 wages (plus tips from Form 4137 and wages from Form 8919), subtracts the threshold on line 5, and multiplies the excess by 0.9% on line 7 |
| II, self-employment income | 8 to 13 | Takes Schedule SE line 6, enters -0- for a loss, subtracts the threshold less your wages (lines 9 to 11), and multiplies the excess on line 12 by 0.9% on line 13 |
| III, RRTA compensation | 14 to 17 | Compares railroad compensation from Form W-2 box 14 with the threshold on its own |
| IV, total | 18 | Adds lines 7, 13 and 17 and carries the total to Schedule 2 (Form 1040), line 11 |
| V, withholding reconciliation | 19 to 24 | Backs the regular 1.45% out of the Medicare tax on Form W-2 box 6 to find the Additional Medicare Tax withheld, and carries line 24 to Form 1040 line 25c with income tax withholding |
Source: Form 8959 (2025) and Instructions for Form 8959 (2025), read and saved October 22, 2026.
The IRS’s own examples show the three traps:
- Two salaries, no withholding. Erin earns $150,000 and Frank $175,000, filing jointly. Each employer is under $200,000, so none withholds, but the combined $325,000 is $75,000 over $250,000 and the tax is $675 (the IRS example gives the $75,000; the $675 is our arithmetic).
- Wages shrink the self-employment threshold. Carl, single, has $145,000 of self-employment income and $130,000 of wages. The wages cut his threshold to $70,000, so he is taxed on $75,000 of self-employment income.
- Filing separately is harsh. Don, married filing separately, has $200,000 of wages and $150,000 of self-employment income. His wages exceed the $125,000 threshold by $75,000, and the wages also cut his self-employment threshold to $0, so all $150,000 is taxed.
A worked example our reader can follow (our arithmetic). A couple files jointly. She earns $230,000 in W-2 wages. He has $60,000 of net profit from consulting. Schedule SE line 4a multiplies $60,000 by 92.35%, so line 6 is $55,410. On Form 8959, line 4 is $230,000 and line 6 is $0, because $230,000 is under $250,000, so Part I is $0. Line 11 is $250,000 less $230,000, or $20,000; line 12 is $55,410 less $20,000, or $35,410; line 13 is $35,410 times 0.9%, or $318.69. Skipping the 92.35% step gives $360.00, which is wrong. Her employer withheld $0, so the whole amount is a balance due or an estimated-tax item.
What the IRS counted: 7.7 million returns, $15.76 billion for 2023
The IRS Statistics of Income division publishes the tax in Table 3.3 of Publication 1304 as “Total additional Medicare tax”. We read the table for all eleven years from 2013 to 2023 and set it beside the net investment income tax from the same table.
| Tax year | Returns paying Additional Medicare Tax | Share of all returns (our arithmetic) | Amount | Average per paying return (our arithmetic) | Returns paying NIIT |
|---|---|---|---|---|---|
| 2013 | 2,815,530 | 1.91% | $6.27 billion | $2,228 | 3,090,498 |
| 2014 | 3,116,486 | 2.10% | $7.26 billion | $2,330 | 3,591,314 |
| 2015 | 3,486,938 | 2.32% | $8.02 billion | $2,300 | 3,828,608 |
| 2016 | 3,647,785 | 2.43% | $8.01 billion | $2,196 | 3,853,849 |
| 2017 | 3,990,003 | 2.61% | $8.94 billion | $2,241 | 4,489,637 |
| 2018 | 4,354,591 | 2.83% | $9.54 billion | $2,191 | 5,025,623 |
| 2019 | 4,790,111 | 3.04% | $10.12 billion | $2,113 | 5,432,786 |
| 2020 | 5,169,751 | 3.15% | $11.36 billion | $2,198 | 5,691,866 |
| 2021 | 6,028,804 | 3.75% | $14.59 billion | $2,420 | 7,211,136 |
| 2022 | 6,973,863 | 4.32% | $15.09 billion | $2,163 | 7,140,565 |
| 2023 | 7,660,835 | 4.77% | $15.76 billion | $2,057 | 8,104,840 |
Source: IRS Statistics of Income, Publication 1304, Table 3.3 (files 13in33ar.xls to 23in33ar.xls), all returns. Amounts are in thousands of dollars in the source and rounded here. Shares and averages are our arithmetic.
The count of payers rose 172.1% in ten years and the amount 151.2% (our arithmetic), the same drift as the 3.8% tax, and for the same reason: the amounts are written into the statute and not indexed. The average payer owes about $2,057, the lowest in the series, because each year more returns land just over the line. In 2023 the Additional Medicare Tax raised 40.1% as much as the net investment income tax (our arithmetic).
Who pays, by size of AGI, for 2023
| Adjusted gross income, tax year 2023 | Returns paying | Share of payers (our arithmetic) | Amount | Share of the tax (our arithmetic) | Average per payer (our arithmetic) |
|---|---|---|---|---|---|
| Under $100,000 (our sum of 11 bands) | 44,467 | 0.6% | $65.5 million | 0.4% | $1,472 |
| $100,000 under $200,000 | 499,775 | 6.5% | $131.4 million | 0.8% | $263 |
| $200,000 under $500,000 | 5,241,460 | 68.4% | $4.19 billion | 26.6% | $800 |
| $500,000 under $1,000,000 | 1,310,112 | 17.1% | $4.29 billion | 27.2% | $3,277 |
| $1,000,000 or more (our sum of 5 bands) | 565,020 | 7.4% | $7.08 billion | 44.9% | $12,527 |
| All returns | 7,660,835 | 100% | $15.76 billion | 100% | $2,057 |
Source: IRS Statistics of Income, Publication 1304, Table 3.3, tax year 2023 (March 2026). Sums, shares and averages are our arithmetic.
Most payers sit in the $200,000 to $500,000 band, but the money sits higher: the 565,020 returns with $1 million or more paid an average of $12,527. Only 47.8% of returns in the $200,000 to $500,000 band paid at all (5,241,460 of 10,955,818, our arithmetic), because a joint return with $240,000 of wages owes nothing. Another 499,775 returns with AGI under $200,000 paid the tax. The table does not say why; two plausible causes are the $125,000 threshold for married filing separately and wages that exceed AGI (our reading).
What Form 8959 shows: the withholding gap
Publication 4801 gives line-by-line estimates for the form. For 2023 it counts 8,564,793 Forms 8959.
| Form 8959 line, tax year 2023 | Returns reporting it | Amount | Note (our arithmetic) |
|---|---|---|---|
| Line 1, Medicare wages and tips | 8,291,451 | $3,313.84 billion | |
| Line 6, wages over the threshold | 7,007,418 | $1,466.47 billion | |
| Line 7, tax on wages | 7,003,603 | $13.20 billion | 83.7% of line 18 |
| Line 8, self-employment income | 1,803,395 | $386.29 billion | |
| Line 13, tax on self-employment income | 1,622,283 | $2.56 billion | 16.2% of line 18; $1,578 average |
| Line 17, tax on RRTA compensation | 1,181 | $2.3 million | |
| Line 18, total Additional Medicare Tax | 7,660,835 | $15.76 billion | |
| Line 22, tax withheld on wages | 6,160,002 | $11.62 billion | |
| Line 24, total withheld | 6,161,132 | $11.62 billion | 73.7% of line 18 |
Source: IRS Statistics of Income, Publication 4801 (Rev. 6-2026), 2023 Individual Income Tax Returns Line Item Estimates, Form 8959. “All figures are estimates based on samples.” Amounts are in thousands of dollars in the source.
The reading that matters: withholding covered 73.7% of the tax, leaving $4.14 billion (26.3%) to be paid with the return or in estimated payments (our arithmetic). Self-employment income is about 16% of the tax and no employer withholds it. For a reader who has retired from a salary and lives on rent and dividends, the Additional Medicare Tax is usually $0 and the 3.8% tax is the one to plan for.
What a reader can do with this before December 31
These are the levers the rules themselves create, not recommendations for any one return.
- Sort your 2026 income by type first. Wages and net self-employment profit go into this tax; rent, REIT and BDC dividends, limited partner K-1 income and sale gains go into the 3.8% tax. Count the first group against $250,000 (joint) or $200,000 (other) and the second group through Form 8960.
- Check whether an employer will withhold. Withholding starts only when wages from one employer pass $200,000. If you file jointly with combined wages over $250,000 and neither of you passes $200,000, no one withholds. The Form 8959 instructions say you may file a new Form W-4 with extra income tax withholding, but “you can’t request additional withholding specifically for Additional Medicare Tax.”
- Estimated payments cover it, but you cannot label them. The same instructions: “You can’t designate any estimated tax payments specifically for Additional Medicare Tax.” Include it in the Form 1040-ES worksheet and the safe-harbor math; our estimated tax guide for K-1, REIT and BDC income walks through the installments. Publication 505 (2026) lists it on the same worksheets.
- Remember that withholding you cannot stop is credited. If you owe less than your employer withheld, you claim the credit on Form 8959 line 24; the instructions say “You can’t ask your employer to stop Additional Medicare Tax withholding if it is required to withhold it.”
- Know your box 14. A general partner’s box 14 code A amount feeds this tax; a limited partner’s usually does not. If you are unsure which you are, ask the sponsor before your CPA files.
- Stop at the second tax. If your income is mostly investment, the lever is the 3.8% tax: MAGI, timing of sales and the real estate professional safe harbor. See our net investment income tax guide and real estate professional guide.
A Roth conversion adds to AGI and so to MAGI, but it is not wages or self-employment income, so it adds no Additional Medicare Tax; its effect on the 3.8% tax and on other thresholds is in our Roth conversion calculator guide.
Whether a dollar of your income is wages, self-employment income or investment income is a facts question about your own K-1s and entities. A CPA or tax attorney with your return decides it. A matched adviser can raise the planning questions with you.
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FAQ
Sources, read and saved on October 22, 2026: Instructions for Form 8959 (2025) and Form 8959 (2025), IRS; IRS Tax Topic 560 (page reviewed October 9, 2026); IRS, Questions and Answers for the Additional Medicare Tax (page reviewed August 11, 2026); 26 U.S.C. 164, 1401, 1402, 3101 and 3102 (U.S. Code, 2024 edition, Government Publishing Office); Instructions for Schedule SE (Form 1040) (2025) and Schedule SE (2025); Publication 505 (2026) and Publication 527 (2025); Instructions for Form 8960 (2025); IRS Statistics of Income, Publication 1304, Table 3.3 for tax years 2013 to 2023 and Publication 4801 (Rev. 6-2026), Form 8959 line item estimates for 2023. Counts, shares, averages and readings marked as ours are CrowdfundedWealth arithmetic and reading. This is analysis of public documents, not investment, legal or tax advice.
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