Medicare tax is a payroll tax that funds hospital care for Americans aged 65 and older and for certain people with disabilities. Every paycheck you earn from a W-2 job has Medicare tax withheld, and if you’re self-employed, you pay it when you file your annual return. Unlike Social Security tax, there is no income cap on Medicare tax. Every dollar of covered wages is subject to it.
What Medicare Tax Pays For
The Medicare tax you see on your pay stub flows into the Hospital Insurance Trust Fund, often called the Part A trust fund. That fund covers inpatient hospital stays, skilled nursing facility care, home health care, and hospice care for Medicare beneficiaries. It also pays for the administrative costs of running Part A, including processing claims and fighting fraud.
Medicare has other parts you may have heard of. Part B (doctor visits, outpatient services) and Part D (prescription drug coverage) are funded separately through a different trust fund. That fund draws mostly from general tax revenue authorized by Congress and from monthly premiums that enrolled beneficiaries pay. Your payroll Medicare tax does not fund Part B or Part D.
How Much You Pay
The standard Medicare tax rate is 1.45% for employees and 1.45% for employers, totaling 2.9% on every dollar of wages. Your employer withholds your 1.45% share automatically and sends it to the IRS along with the matching 1.45% they owe. On a $60,000 salary, that means $870 comes out of your paychecks over the course of the year, and your employer contributes another $870.
There is no wage base limit for Medicare tax. Social Security tax stops applying once your earnings hit a certain annual threshold, but Medicare tax applies to all covered wages regardless of how much you earn.
The Additional Medicare Tax for Higher Earners
If your earnings exceed a certain level, you owe an extra 0.9% on the amount above the threshold. This is called the Additional Medicare Tax, and the thresholds depend on your tax filing status:
- Married filing jointly: $250,000
- Married filing separately: $125,000
- Single, head of household, or qualifying widow(er): $200,000
Your employer is required to start withholding the extra 0.9% once your wages pass $200,000 in a calendar year, regardless of your filing status. If your actual threshold is different (for example, $250,000 because you file jointly), you reconcile the difference when you file your tax return. You might get some of that withholding back, or you might owe more.
One important detail: there is no employer match on the Additional Medicare Tax. The 0.9% comes entirely out of your pocket. So a high earner effectively pays 2.35% (1.45% plus 0.9%) on income above the threshold, while the employer’s share stays at 1.45%.
How It Works for Self-Employed People
If you’re self-employed, you play both roles, employee and employer, so you owe the full 2.9% Medicare tax on your net self-employment income. You calculate this using Schedule SE when you file your federal tax return.
The silver lining is that you can deduct the employer-equivalent portion (half of your self-employment tax) when calculating your adjusted gross income. This deduction lowers your income tax bill, though it does not reduce the self-employment tax itself. For example, if you earn $100,000 in net self-employment income and pay $2,900 in Medicare tax, you can deduct $1,450 from your taxable income on your 1040.
The Additional Medicare Tax applies to self-employment income too. If your net earnings exceed the threshold for your filing status, the extra 0.9% kicks in on the amount above that line, and you cannot deduct any portion of it.
Where Medicare Tax Shows Up
On your pay stub, Medicare tax is usually listed separately from Social Security tax, though together they make up what’s formally called FICA (Federal Insurance Contributions Act) tax. Your W-2 at year’s end shows your total Medicare wages in Box 5 and total Medicare tax withheld in Box 6. If the Additional Medicare Tax was withheld, that appears in Box 14 or on a separate line.
If you work multiple jobs during the year, each employer withholds Medicare tax independently. One employer has no way of knowing what you earned at another job, so the $200,000 withholding trigger for the Additional Medicare Tax resets at each workplace. You settle any overpayment or underpayment when you file your return using Form 8959.