The Medicare Tax Rate and How It Works

Medicare tax is 2.9 percent of your wages, split evenly between you and your employer. You pay 1.45 percent directly from your paycheck, and your employer pays the other 1.45 percent. If you are self-employed, you pay both halves yourself — 2.9 percent total — though you can deduct half of it on your tax return.

Unlike Social Security tax, which stops once you reach a certain income level each year, Medicare tax applies to all your wages with no upper limit. This means high earners pay Medicare tax on every dollar they make, not just the first portion of their income.

There is also an additional Medicare tax of 0.9 percent that kicks in once your income passes a threshold. For single filers, that threshold is $200,000 per year. For married couples filing jointly, it is $250,000. For married people filing separately, it is $125,000. This extra 0.9 percent comes entirely from your paycheck — your employer does not match it.

Key Takeaways

  • The standard Medicare tax rate is 2.9 percent of all wages, with you and your employer each paying 1.45 percent.
  • Self-employed workers pay the full 2.9 percent themselves, though they can deduct half on their tax return.
  • An additional 0.9 percent Medicare tax applies to wages above $200,000 for single filers and $250,000 for married couples filing jointly.
  • Medicare tax has no wage cap, so it applies to every dollar you earn, unlike Social Security tax.

Where Your Medicare Tax Money Goes

Medicare tax funds the Medicare program, which provides health insurance to people age 65 and older, some younger people with disabilities, and people with end-stage renal disease. The money you pay in now goes partly to current beneficiaries and partly into the Medicare trust fund for future use.

Medicare has two main trust funds: Hospital Insurance (Part A) and Supplementary Medical Insurance (Part B). Your Medicare tax contributions go into the Hospital Insurance trust fund, which covers inpatient hospital stays, skilled nursing facility care, hospice, and home health services.

How to Find Your Medicare Tax on Your Pay Stub

Look at your pay stub under the section labeled "Deductions" or "Taxes." You will see a line that says "Medicare" or "Med Tax" showing 1.45 percent of your gross pay. If your income is above the threshold for additional Medicare tax, you may also see a separate line for "Additional Medicare Tax" or "Medicare Surtax" showing 0.9 percent.

Your employer lists their matching 1.45 percent contribution separately on your annual W-2 form, but it does not appear on your pay stub. The total amount you and your employer pay combined is what funds the program.

If you are self-employed and file Schedule SE with your tax return, you will calculate your Medicare tax there. The form walks you through the calculation and shows you how much you can deduct.

Medicare Tax for Self-Employed Workers

If you run your own business or are a freelancer, you pay both the employee and employer portions of Medicare tax on your net self-employment income. This means 2.9 percent total, plus the additional 0.9 percent if your income exceeds the threshold.

Self-employed workers calculate this on Schedule SE, which is part of the tax return you file with the IRS. The form multiplies your net self-employment income by 92.35 percent first (to account for the employer portion deduction), then applies the 2.9 percent rate. You then transfer this amount to your main tax return.

The good news is that you can deduct half of your self-employment tax on your tax return, which lowers your taxable income. This deduction appears on Form 1040 and reduces the amount of income tax you owe.

The Additional Medicare Tax and Income Thresholds

The additional 0.9 percent Medicare tax was added in 2013 as part of the Affordable Care Act. It applies only to wages above certain income levels, and the threshold depends on your filing status.

For single filers, the threshold is $200,000. For married couples filing jointly, it is $250,000. For married people filing separately, it is $125,000. These thresholds do not adjust for inflation, so they remain the same year to year.

Your employer is responsible for withholding this additional tax once your wages cross the threshold. If you have multiple jobs or a spouse who also works, you may end up paying more additional Medicare tax than necessary, but you can claim a credit on your tax return to get the overpayment back.

Medicare Tax Versus Social Security Tax

Medicare tax and Social Security tax are often mentioned together because they are both withheld from your paycheck, but they work differently. Social Security tax is 6.2 percent (with a 6.2 percent employer match), but it only applies to the first $168,600 of your wages in 2024. Once you earn more than that, you stop paying Social Security tax for the rest of the year.

Medicare tax, by contrast, applies to all your wages with no upper limit. This is why high earners pay a much larger percentage of their income in Medicare tax than lower earners do. The additional 0.9 percent Medicare tax was designed partly to address this difference.

Both taxes fund different programs. Social Security tax goes to retirement, disability, and survivor benefits. Medicare tax goes to health insurance for seniors and certain other groups. You cannot opt out of either one if you are employed or self-employed.

What Happens to Medicare Tax Money

The Medicare Hospital Insurance trust fund, which receives your Medicare tax contributions, pays for inpatient hospital care, skilled nursing facilities, hospice services, and home health care. The fund operates on a pay-as-you-go basis, meaning current workers' taxes pay for current beneficiaries' care.

The trust fund also maintains a reserve to cover temporary shortfalls. In recent years, the fund has faced pressure because more people are becoming may be able to access for Medicare as the population ages, while the ratio of workers to beneficiaries shrinks. This is why you may hear discussions about the long-term solvency of Medicare.

The additional 0.9 percent Medicare tax revenue goes into the Supplementary Medical Insurance trust fund, which covers physician services, outpatient care, and other Part B benefits.

Frequently Asked Questions

Why do I pay Medicare tax if I am not 65 yet?

Medicare tax funds the program for current beneficiaries, not just for your own future benefits. The system works on a pay-as-you-go basis, so your contributions today help pay for seniors' care today. You will benefit from the program when you turn 65 or if you become disabled.

Can I get a refund of Medicare tax I paid?

No, Medicare tax is not refundable. However, if you overpaid additional Medicare tax due to having multiple jobs or a working spouse, you can claim a credit on your tax return to recover the overpayment. You would file Form 8959 with your tax return to claim this credit.

Does Medicare tax explore to all types of income?

Medicare tax applies to wages and self-employment income. It does not explore to investment income, interest, dividends, or capital gains. However, high-income earners may owe a separate 3.8 percent Net Investment Income Tax on certain investment income, which is different from Medicare tax.

What if my employer did not withhold Medicare tax from my paycheck?

Contact your employer's payroll department when ready. They are required by law to withhold Medicare tax. If they failed to do so, you may owe the amount when you file your tax return, and your employer may face penalties. Keep records of your pay stubs as evidence.

Does the Medicare tax rate ever change?

The 1.45 percent and 2.9 percent rates have remained the same since 1966 and 1992 respectively. The 0.9 percent additional Medicare tax rate has been in place since 2013. Congress would need to pass new legislation to change these rates.