What the Medicare payroll tax is

The Medicare payroll tax is a tax on your wages that funds the Medicare program, which pays for hospital care, medical insurance, and prescription drug coverage for people 65 and older and some younger people with disabilities. You and your employer each pay a portion of this tax on every paycheck.

Unlike income tax, which varies based on how much you earn, the Medicare tax is a flat percentage applied to all your wages with no upper limit. This means if you earn $50,000 or $500,000, the same tax rate applies to every dollar.

The tax appears on your pay stub as "Medicare" or "FICA Medicare" and is withheld automatically. Your employer sends both the employee and employer portions to the Internal Revenue Service on your behalf.

Key Takeaways

  • You pay 1.45 percent of your wages toward Medicare, and your employer pays another 1.45 percent, for a total of 2.9 percent.
  • Self-employed people pay both portions themselves: 2.9 percent of net earnings, plus an additional 0.9 percent on income above a threshold.
  • An additional 0.9 percent Medicare tax applies to wages over $200,000 for single filers and $250,000 for married couples filing jointly.
  • The Medicare tax has no wage cap, so it applies to every dollar you earn, unlike Social Security tax which stops after a certain amount each year.

Employee and employer Medicare tax rates

As an employee, you pay 1.45 percent of your gross wages toward Medicare. This amount is deducted from your paycheck before you receive it. Your employer pays an equal 1.45 percent on your behalf and sends it directly to the IRS.

Together, the employee and employer portions total 2.9 percent of your wages. This is separate from Social Security tax, which has its own rate and wage limit. Both taxes are part of what the IRS calls FICA taxes.

The 1.45 percent rate has remained the same since 1985. It does not change based on your income level or how many jobs you hold.

The additional Medicare tax on high earners

If your wages exceed a certain threshold, you pay an additional 0.9 percent Medicare tax on the amount above that threshold. This extra tax was added in 2013 as part of the Affordable Care Act.

The income thresholds are $200,000 for single filers, $250,000 for married couples filing jointly, and $125,000 for married couples filing separately. These thresholds do not adjust for inflation each year, so more people may owe this tax over time.

Your employer withholds this additional tax automatically once your wages cross the threshold in a given year. If you have multiple jobs, the withholding is based on the total wages from all employers combined, which means you may need to adjust your withholding or claim a refund when you file your tax return.

How self-employed people pay the Medicare tax

If you are self-employed, you pay both the employee and employer portions of the Medicare tax yourself. This is called the self-employment tax. You pay 2.9 percent on your net earnings from self-employment, plus the additional 0.9 percent if your income exceeds the thresholds mentioned above.

You calculate self-employment tax on Schedule SE, which is part of your federal tax return. You can deduct half of your self-employment tax as a business expense, which lowers your taxable income.

Self-employed people pay this tax when they file their annual return, though many make quarterly estimated tax payments throughout the year to avoid a large bill at tax time.

Where Medicare tax money goes

Medicare tax revenue funds Medicare Part A, which covers inpatient hospital stays, skilled nursing facility care, hospice, and home health services. Part A is the hospital insurance portion of Medicare.

The tax does not directly fund Medicare Part B (medical insurance for doctor visits and outpatient care) or Part D (prescription drug coverage). Those are funded partly by general tax revenue and partly by premiums that beneficiaries pay.

The Medicare Trust Fund holds the revenue from payroll taxes and uses it to pay claims as they come in. The trustees of this fund publish annual reports on whether the fund will have enough money to cover future claims.

Medicare tax and your pay stub

On your pay stub, the Medicare tax appears as a deduction labeled "Medicare," "Med Tax," or "FICA Medicare." It is listed separately from federal income tax withholding and Social Security tax.

The amount withheld is calculated automatically by your employer's payroll system based on your gross wages. If you earn $2,000 in a pay period, for example, $29 goes toward Medicare tax (1.45 percent of $2,000).

You can see your lifetime Medicare tax contributions on your Social Security statement, which you can view online through your my Social Security account at ssa.gov. This statement also shows your estimated Social Security benefits.

Medicare tax and your tax return

When you file your federal income tax return, the Medicare tax you paid during the year appears on your W-2 form in box 6. You do not claim this as a deduction or credit — it is straightforward reported for your records.

If you had multiple jobs or your income crossed the additional Medicare tax threshold, you may have overpaid this tax during the year. In that case, you can claim the overpayment as a refund when you file your return.

Self-employed people report Medicare tax on Schedule SE and transfer the amount to their Form 1040. The employer-equivalent portion is deductible as a business expense.

Frequently Asked Questions

Does Medicare tax have a wage cap like Social Security tax does?

No. Social Security tax stops once you reach a certain wage limit each year (which changes annually), but Medicare tax applies to every dollar you earn, no matter how much you make. This is why high earners pay more Medicare tax than low earners.

Can I opt out of paying Medicare tax?

No. Medicare tax is mandatory for all employees and self-employed people. There are no exemptions based on religion, age, or other circumstances. The only exception is for certain members of religious groups who have received an exemption from Social Security tax, which may also exempt them from Medicare tax.

What happens if I work for multiple employers?

Each employer withholds 1.45 percent Medicare tax from your wages. If your combined wages exceed the threshold for the additional 0.9 percent tax, you may overpay during the year. You can claim the overpayment as a refund when you file your tax return.

Is Medicare tax the same as Medicare premiums?

No. Medicare tax is the payroll tax you pay while working. Medicare premiums are what you pay monthly once you are enrolled in Medicare, usually starting at age 65. Premiums cover Part B and Part D; Part A is funded by the payroll tax.

Will Medicare tax rates increase in the future?

Congress would have to pass a law to change the Medicare tax rate. The current 1.45 percent rate has been in place since 1985. The additional 0.9 percent tax for high earners was added in 2013, but there is no scheduled increase.