US Personal Tax Services: Additional Medicare Tax in the UK

The 0.9% Additional Medicare Tax reaches an American in the UK only where the earnings are already subject to US Medicare tax: wages on a US payroll, or self-employment income not protected by the US-UK totalisation agreement. Earnings covered solely by UK National Insurance fall outside it. Form 8959 computes the charge and reconciles employer withholding.

That short answer conceals most of the errors we correct. At Jungle Tax, our US personal tax services for senior executives, partners and founders in London regularly involve returns on which the Additional Medicare Tax has been charged on a UK salary that was never Medicare wages, omitted on a US-payroll secondment where it was plainly due, or calculated against the wrong threshold because the taxpayer files separately from a non-US spouse. The sums are rarely dramatic in a single year. Repeated across a decade of self-prepared returns, and combined with a misapplied self-employment tax, they become material, and they are exactly the kind of inconsistency that draws correspondence.

This guide is about return preparation: who is caught, how the totalisation agreement decides the question, how Form 8959 works line by line, and how past years are put right. It is not a guide to Medicare benefits or entitlement.

What is the Additional Medicare Tax, and who actually pays it?

The Additional Medicare Tax is a 0.9% charge that has applied since 2013 to three categories of earnings only: Medicare wages, Railroad Retirement Tax Act compensation, and self-employment income. It sits on top of the ordinary Medicare tax of 1.45% for employees (matched by a further 1.45% from the employer) or 2.9% for the self-employed. There is no employer match on the additional 0.9%; it is borne by the individual alone.

The charge applies only to the amount by which those earnings exceed a threshold fixed by filing status. The IRS confirms the figures in its questions and answers for the Additional Medicare Tax:

• Married filing jointly: $250,000 of combined earnings of both spouses.
• Married filing separately: $125,000.
• Single, head of household and qualifying surviving spouse: $200,000.

These thresholds are set in the statute and are not indexed for inflation. They are the same in 2026 as they were in 2013, which is why a tax originally aimed at a narrow group now touches most senior cross-border employees who remain on a US payroll.

The point generalist guidance gets wrong

The IRS states that there are no special rules for US citizens living abroad. That sentence is frequently misread as meaning that all foreign earnings count towards the threshold. It means something narrower: if earnings are subject to Medicare tax, living abroad does not shelter them from the additional 0.9%. The prior question, whether the earnings are subject to Medicare tax at all, is answered by the employment tax rules and by the totalisation agreement, not by Form 8959. A salary of £400,000 paid by a UK employer under PAYE, with UK National Insurance deducted, is taxable income on Form 1040. It is not Medicare wages, and it does not enter Form 8959 at any point.

Which Americans in the UK are caught?

In practice our clients fall into one of four positions, and the first task on any return is to establish which applied in each month of the year.

1. Seconded to the UK on a US payroll

An executive sent to London by a US employer for an assignment expected to last five years or less normally remains in the US social security system. The employer obtains a US certificate of coverage, the UK host accepts it as evidence that no UK National Insurance is due, and the US payroll continues to withhold Social Security and Medicare tax. These wages are Medicare wages. Once they pass $200,000 in the calendar year, the 0.9% applies, and Form 8959 is required with the return. Salary, bonus, the value of vesting restricted stock units and other non-cash remuneration reported in box 5 of Form W-2 are all included.

2. Employed by a UK employer

An American hired locally by a UK company, including the UK subsidiary of a US group, is employed by a non-US employer. US Medicare tax does not apply to those wages in the first place, and the totalisation agreement in any event assigns the employment to the UK system. There are no Medicare wages and no Additional Medicare Tax, however large the salary. The exception is the uncommon case in which the US parent has entered into an agreement under section 3121(l) to extend US coverage to US citizens employed by a foreign affiliate; where that exists it will be visible in the payroll records.

3. Working in the UK directly for an American employer, without a secondment

Under US domestic law, a US citizen working abroad for an American employer, broadly a corporation organised under US or state law, remains within Medicare tax. Where that individual lives and works in the UK on an open-ended basis rather than a time-limited detachment, the agreement places the employment under UK legislation only, and the US charge falls away. This is where payroll most often goes wrong: the US entity carries on withholding Social Security and Medicare tax, including the additional 0.9% above $200,000, on wages that should carry UK National Insurance instead.

4. Self-employed or a partner, resident in the UK

US self-employment tax follows citizenship, not residence, and the foreign earned income exclusion does not reduce it. A UK-resident American consultant or partner in a professional firm is therefore within the 2.9% Medicare element and the 0.9% Additional Medicare Tax under domestic law. The US-UK agreement overrides that result: a self-employed person who resides in the UK is covered by the UK system alone. The exemption has to be evidenced, which is the subject of the next section.

Mixed years are common. A year of arrival or localisation may contain eight months of US-payroll wages and four months of UK employment; a partner may also hold a salaried US directorship. Each stream is tested separately, and only the Medicare-covered streams reach Form 8959.

Why does UK National Insurance take earnings outside the Additional Medicare Tax?

The United States and the United Kingdom have had a bilateral social security agreement in force since 1985. Its purpose on the contributions side is to ensure that a given piece of work is covered by one country's system only. The Internal Revenue Code gives effect to this: wages and self-employment income are exempt from the US Social Security and Medicare taxes for any period in which, under a totalisation agreement, they are subject exclusively to the other country's social security laws. The IRS summarises the framework on its totalization agreements page.

The Additional Medicare Tax is not a free-standing tax. For employees it is an increment to the Medicare tax on wages; for the self-employed it is an increment to the Medicare element of self-employment tax. If the underlying earnings are exempt from Medicare tax under the agreement, there is nothing for the 0.9% to attach to. That is the legal reason a UK-covered salary or UK-covered profit share is generally outside it, and it is why the correct treatment is to leave those earnings off Form 8959 altogether, not to compute the tax and then look for a credit.

How do self-employed Americans evidence the exemption?

For the self-employed there is no employer and no payroll record to show which system applied. The IRS therefore expects a certificate of coverage issued by the country whose system applies. For a UK resident that means a certificate from HMRC confirming that the individual is subject to UK National Insurance legislation for the period. The IRS guidance on self-employment tax for businesses abroad sets out the mechanics:

• request the certificate from the foreign agency, here HMRC;
• attach a photocopy to Form 1040 for every year in which exemption is claimed; and
• write "Exempt, see attached statement" on the self-employment tax line.

A return that simply omits Schedule SE, with no certificate and no statement, has not claimed the exemption; it has left a gap. On examination the IRS is entitled to assess the full self-employment tax, including the 2.9% Medicare element and the 0.9% above the threshold, and to leave the taxpayer to prove UK coverage after the event. For a partner or consultant with substantial earnings, the certificate is the single most valuable document on the file, and we obtain it before the return is filed, not after an enquiry opens.

To put a figure on it: on net self-employment profit of $600,000, the Schedule SE base is 92.35%, or $554,100. The ordinary Medicare element at 2.9% is $16,068.90. The Additional Medicare Tax for a single filer is 0.9% of the $354,100 above $200,000, or $3,186.90. That is $19,255.80 a year in Medicare charges alone, before the capped Social Security element, on income that is also bearing UK Class 4 contributions.

US Medicare tax and UK National Insurance compared

Readers who have worked in both countries often assume the two charges are equivalents that can be set against each other. They are not. They are alternatives, and the agreement decides which one applies.

Feature	United States (IRS)	United Kingdom (HMRC)
Charge on high employment earnings	Medicare tax of 1.45% on all Medicare wages, plus 0.9% Additional Medicare Tax above the filing-status threshold	Employee Class 1 National Insurance of 8% between £12,570 and £50,270 and 2% above, for 2026 to 2027
Employer contribution	1.45% matching Medicare tax; no employer share of the 0.9%	Employer Class 1 at 15% on earnings above the £5,000 secondary threshold
Self-employed	2.9% Medicare element on 92.35% of net earnings, plus 0.9% above the threshold, reported on Schedule SE and Form 8959	Class 4 at 6% on profits between £12,570 and £50,270 and 2% above, through Self Assessment
Ceiling	None on either Medicare charge	None; the 2% rate continues without limit
Threshold for the top-up charge	$200,000, $250,000 or $125,000 by filing status; not indexed	Not applicable; no filing-status concept
Collected through	Form W-2 payroll withholding above $200,000, reconciled on Form 8959 with Form 1040	PAYE for employees; Self Assessment for the self-employed
Foreign tax credit	Not available against Medicare or Additional Medicare Tax	US social security taxes are not credited against UK income tax
Which applies to an American in the UK	Determined by the US-UK totalisation agreement and evidenced by a certificate of coverage, never by taxpayer choice

Current UK rates are published by HMRC on GOV.UK under National Insurance rates and categories. HMRC's employer guidance also confirms the reciprocal point on the UK side: where an employee arriving from a country with a social security agreement holds a certificate showing that they remain in the home system, the UK employer can accept it as proof that no UK National Insurance is due for the period it covers.

Married filing separately with a non-US spouse: the $125,000 threshold

A US citizen married to a spouse who is neither a US citizen nor a US resident, and who has not elected to treat that spouse as a US resident, generally files as married filing separately. For Additional Medicare Tax purposes that halves the joint threshold to $125,000. It is the lowest threshold in the regime, and it applies to precisely the household profile that dominates our London practice: a US executive on secondment, married to a British spouse.

The employer cannot see this. Withholding of the 0.9% begins only when wages from that employer pass $200,000, whatever the employee's filing status. On Medicare wages above $200,000, a separate filer is therefore always under-withheld by 0.9% of the $75,000 between the two figures, which is $675. For example:

• Medicare wages on a US payroll: $850,000.
• Additional Medicare Tax due: 0.9% of ($850,000 less $125,000) = $6,525.
• Withheld by the employer: 0.9% of ($850,000 less $200,000) = $5,850.
• Balance payable with the return: $675.

Two alternatives to separate filing change the threshold, and both are filing-status questions with consequences far wider than this tax. Where a qualifying child or other dependant lives in the home, the taxpayer may be treated as unmarried and file as head of household, with the $200,000 threshold; we explain the conditions in our guide to head of household status with a non-US spouse. Alternatively, an election to treat the spouse as a US resident permits a joint return and the $250,000 threshold. The non-US spouse's UK salary is not Medicare wages and does not count towards that threshold, but the election brings the spouse's worldwide income into US tax and is never a decision to take on account of a 0.9% charge.

How does employer withholding above $200,000 reconcile on Form 8959?

The form, described on the IRS page About Form 8959, has five parts. Understanding what each does is the quickest way to audit a past return.

• Part I, Medicare wages. Box 5 of every Form W-2, plus any wages from Form 8919 and unreported tips from Form 4137, less the filing-status threshold, multiplied by 0.9%.
• Part II, self-employment income. The Schedule SE figure, measured against the same threshold after reducing that threshold, but not below zero, by the Medicare wages already counted in Part I. A self-employment loss does not reduce wages.
• Part III, railroad retirement compensation. Rarely relevant to our clients, and tested against its own threshold.
• Part IV, total. Line 18 carries the liability to Schedule 2 of Form 1040, line 11 on the 2025 form.
• Part V, withholding. Box 6 of Form W-2 contains both the ordinary 1.45% and any additional 0.9% withheld. Part V strips out the ordinary 1.45% and treats the remainder as Additional Medicare Tax withheld. Line 24 carries that amount to the federal withholding line of Form 1040, line 25c on the 2025 form.

The liability and the withholding therefore travel to different parts of the return and meet only in the final balance. Form 8959 must be filed whenever Medicare wages on any single Form W-2 exceed $200,000, even if no further tax is due, because that is the only route by which the withheld amount is credited.

Over-withholding is as common as under-withholding. Take a couple who are both US citizens and file jointly. One is on a US payroll with Medicare wages of $240,000; the other is employed by a UK bank on a salary of £150,000 under PAYE. The US employer withheld 0.9% of $40,000, which is $360. Their combined Medicare wages are $240,000, below the $250,000 joint threshold, because the UK salary is not Medicare wages. No Additional Medicare Tax is due, and the $360 is recovered through Part V. A preparer who had entered the UK salary as Medicare wages would instead have produced a liability on income the tax does not reach.

Where a liability is expected that payroll will not cover, the employee cannot ask the employer to withhold the 0.9% early. The IRS position is that the shortfall is met by increasing income tax withholding on Form W-4 or by estimated payments, and the Additional Medicare Tax counts in the estimated tax computation.

Why is no foreign tax credit or exclusion available?

High earners in the UK are accustomed to the foreign tax credit eliminating their US income tax on UK earnings, since UK income tax at 45% exceeds the top US rate. The Additional Medicare Tax does not behave that way, for three reasons.

• The credit is confined to income tax. The foreign tax credit reduces the regular income tax imposed by chapter 1 of the Internal Revenue Code. The Additional Medicare Tax is imposed by the employment tax and self-employment tax chapters, and the credit cannot be applied against it.
• UK National Insurance is not creditable. Social security contributions paid to a country with which the United States has a totalisation agreement are neither creditable nor deductible as foreign taxes.
• The foreign earned income exclusion does not apply. The exclusion reduces income subject to income tax. It does not reduce Medicare wages reported on Form W-2, and it does not reduce net earnings from self-employment.

The consequence is that where the tax applies, it is a real cash cost with no offset. The only legitimate route out of it is the one the agreement provides: the earnings are covered by the UK system and are not subject to Medicare tax at all.

How does it interact with the 3.8% net investment income tax?

Briefly, because they are different taxes that happen to share an origin and similar thresholds. The net investment income tax is 3.8% of the lesser of net investment income and the excess of modified adjusted gross income over $200,000, $250,000 for joint filers or $125,000 for separate filers. It is computed on Form 8960 and applies to interest, dividends, gains, rents and passive income, not to wages or self-employment income.

Three points matter in preparation. First, the two taxes never apply to the same dollar of income, but a single taxpayer can owe both. Second, wages and foreign earned income that has been excluded both count towards the modified adjusted gross income threshold for the 3.8% tax, so a UK salary that is irrelevant to Form 8959 can still push investment income into charge on Form 8960. Third, a qualifying surviving spouse has a $250,000 threshold for the 3.8% tax but $200,000 for the Additional Medicare Tax. The IRS position is that the foreign tax credit is not available against either.

Common preparation errors on self-prepared and catch-up returns

These are the patterns we see most often when taking over a file.

• UK salary entered as Medicare wages. Consumer software asks for a Form W-2; the taxpayer builds a substitute from a P60 and populates box 5. Form 8959 then charges 0.9% on wages that never bore Medicare tax.
• The wrong threshold. A separate filer is tested against $200,000 instead of $125,000, usually because the form was completed by reference to what payroll withheld.
• Form 8959 omitted where it was mandatory. A secondee with a Form W-2 above $200,000 files without the form, so the liability is missing from Schedule 2 and the withheld amount is never credited, or is lumped into income tax withholding without support.
• Self-employment tax left off with no certificate. The exemption under the agreement is assumed but not claimed or evidenced, leaving every open year exposed to the full charge.
• Double contributions. The opposite error: Schedule SE and Form 8959 completed in full on profits that also bore UK Class 4 contributions, because the taxpayer did not know the agreement existed.
• US payroll that did not stop. Social Security and Medicare tax continue to be withheld after the secondment has become permanent or the certificate period has expired, and the Form W-2 is never corrected.
• The foreign earned income exclusion treated as a cure. Self-employment income is excluded on Form 2555 and Schedule SE is skipped on the assumption that excluded income carries no further US tax.
• A foreign tax credit claimed against it. UK income tax or National Insurance is applied against the Schedule 2 total, overstating the credit.
• Confusion with Form 8960. Wages are included in net investment income, or the 3.8% tax is treated as covering the Medicare position.

How are past errors corrected?

The route depends on whether returns were filed and on which direction the error runs.

1. Establish coverage year by year. For each year, identify which system each stream of earnings fell under, and the document that proves it: a US certificate of coverage for a secondment, UK payroll records for local employment, an HMRC certificate for self-employment.
2. Obtain the evidence before filing. A self-employed client applies to HMRC for the certificate covering the relevant periods. Where a US employer reported Medicare wages in error, a corrected Form W-2c is requested.
3. Recompute Schedule SE and Form 8959. Each affected year is reworked on the correct threshold and the correct wage base.
4. File Form 1040-X. The amended return carries the corrected Form 8959 and, where Medicare wages have changed, the Form W-2 or W-2c. A refund claim must generally be made within three years of the original filing or two years of payment, whichever is later. Additional tax due carries interest from the original April due date; the automatic two-month extension for taxpayers abroad extends time to file, not time to pay.
5. Recover wrongly withheld Social Security and ordinary Medicare tax separately. These are reclaimed from the employer in the first instance and, failing that, by a refund claim to the IRS. The additional 0.9% withheld is dealt with on the individual return through Form 8959.
6. Where returns were never filed. An American in the UK whose non-filing was non-wilful will usually regularise through the IRS streamlined filing procedures: three years of returns and six years of FBARs under the Streamlined Foreign Offshore Procedure. Self-employment tax and Additional Medicare Tax form part of the tax shown on those returns, so the coverage analysis and the certificate have to be in place before the submission is made.
7. Check the UK side. The exemption depends on UK coverage being real. We confirm that Class 1 was operated through PAYE or that Class 4 was reported through Self Assessment, and where it was not, the UK position is corrected alongside the US one through our UK tax services.

What we need to prepare the position correctly

For a client with US-payroll or self-employment income, the Additional Medicare Tax analysis draws on a short list of documents: every Form W-2 with boxes 5 and 6, UK P60s and P45s, any certificate of coverage and the assignment letter that supports it, the partnership or self-employment accounts, the filing status history, and the prior three years of US returns. From those we can say, usually within a first review, whether Form 8959 has been right, whether tax has been overpaid and is still within time to reclaim, and whether an exposure exists that should be closed before the IRS raises it.

Because the answer turns on the interaction of two social security systems and two payrolls, it is best prepared by one team that handles both returns. That is the basis of our work as US-UK tax accountants and of our private client tax services for executives and partners with earnings on both sides of the Atlantic. Further technical notes are in our cross-border tax guides.

If you are on a US payroll in London, file separately from a non-US spouse, are self-employed without a certificate of coverage, or suspect that earlier returns treated UK earnings as Medicare wages, we would be glad to review the position. To arrange a confidential consultation, contact our cross-border team. We will tell you plainly what is owed, what is reclaimable, and what needs to be filed.