The 0.9% Additional Medicare Tax and Your S-Corp Salary: 2026 Math

The Additional Medicare Tax is a flat 0.9% under IRC §3101(b)(2). It applies to Medicare wages and self-employment income above a threshold set by filing status: $250,000 for married filing jointly, $125,000 for married filing separately, and $200,000 for single, head of household, and qualifying surviving spouse. Those thresholds were written into law by the Affordable Care Act in 2013 and are not indexed for inflation, so they have not moved in over a decade. Every year that wages drift up with inflation, a few more owners cross into this tax without a rate change ever happening.

Where the 0.9% actually lands

Payroll tax on an S-Corp salary is not one flat rate. It stacks in layers, and the Additional Medicare Tax is the top layer. The first layer is the 12.4% Social Security tax, which stops at the 2026 wage base of $184,500. Above that ceiling, only the 2.9% Medicare tax keeps running, split as 1.45% from the employee and 1.45% matched by the employer. Then, once wages cross the filing-status threshold, the 0.9% surtax stacks on top of the employee's half. There is no employer match on that 0.9%, which is exactly why it is easy to miss when you size a salary using the employer's payroll cost alone.

Why distributions never touch it

The whole S-Corp strategy runs on one distinction. Wages are subject to FICA and, above the threshold, to the 0.9% surtax. Distributions are a return of profit to the owner and are not wages, not reported in the Medicare wages box of a W-2, and not net earnings from self-employment. So a distribution never enters the calculation on Form 8959, the form where the Additional Medicare Tax is figured and reconciled. That is the same reason distributions escape the regular 2.9% Medicare tax and the 12.4% Social Security tax. Only the reasonable salary you run through payroll is exposed. Set a defensible salary, and everything above it comes out clean.

Same profit, two structures

Both owners below are single filers with $400,000 of business profit and no other job. One operates as a sole proprietor. The other elected S-Corp status, pays a defensible $230,000 salary, and takes $170,000 in distributions. I am isolating just the 0.9% layer here so you can see it clearly. The larger Social Security and Medicare savings sit on top of this and are covered in the guides linked below. These owners are theoretical, not actual EntityIQ clients.

On this one layer alone, the S-Corp structure drops the surtax from $1,525 to $270, a $1,255 difference. It is a small number next to the Social Security savings, but it is real, it repeats every year, and it grows as profit climbs. Self-employment income for the sole proprietor is capped at 92.35% of net profit under IRC §1402(a)(12), which is why the sole-proprietor base is $369,400 rather than the full $400,000. The self-employment version of the surtax lives in IRC §1401(b)(2).

The withholding trap on Form 8959

Here is the part that surprises people at filing time. Your S-Corp must withhold the extra 0.9% on any wages it pays you above $200,000 in a calendar year, under IRC §3102(f)(1). The employer applies that flat $200,000 trigger to the wages it pays, regardless of your filing status, your spouse's income, or a second job. You then reconcile the real liability against your filing-status threshold on Form 8959. When those two numbers disagree, money moves.

A married couple filing jointly where one spouse draws a $230,000 S-Corp salary and the other earns $40,000 has $270 withheld by the S-Corp, yet the household threshold is $250,000 and total Medicare wages are $270,000, so only $180 is actually owed. The overage comes back as a credit on the return. Flip it around. Two spouses each earning $180,000 have nothing withheld, because neither crosses $200,000 at their own employer, but their combined $360,000 sits $110,000 over the joint threshold, so they owe $990 they did not see coming. If you run an S-Corp inside a two-earner household, plan for this rather than getting surprised by it in April.

What this means for your salary decision

The Additional Medicare Tax does not change the core S-Corp logic. It sharpens it. Once your reasonable salary clears the $200,000 or $250,000 line, every additional dollar of salary carries a 3.8% Medicare cost, while every dollar of distribution carries zero. That widens the gap between the two, which makes an honestly determined reasonable compensation figure worth even more at high income. It is not a license to lowball the salary. The IRS still expects wages that match the value of your services, and paying too little to chase the surtax is how audits start. Set the salary you can defend, then let the distributions do the tax-free work above it.

If your profit is high enough that this tax is in play, run your own numbers before you decide on a salary. The EntityIQ S-Corp tax calculator factors in the wage base and the Medicare layers so you can see the full picture, not just the Social Security piece. For the surtax on the investment side, see our guide to the 3.8% net investment income tax, and for how the wage base itself drives the decision, see the Social Security wage base and S-Corp math.

This article is educational and is not legal or tax advice. The figures use 2026 amounts, and the owners are theoretical. Please consult a qualified CPA or enrolled agent before setting your salary or filing an S-Corp election.