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, and your employer pays 1.45 percent. If you are self-employed, you pay both halves — 2.9 percent total — though you can deduct half of it on your tax return.
This tax funds Medicare Part A, which covers hospital stays, skilled nursing care, and hospice. Unlike income tax, Medicare tax has no income threshold where it stops — you pay it on every dollar you earn, no matter how much you make in a year.
There is one exception: high earners pay an additional 0.9 percent Medicare tax on wages above a certain threshold. For 2024, that threshold is $200,000 for single filers and $250,000 for married couples filing jointly. This extra tax goes toward the Affordable Care Act's insurance programs, not toward Medicare itself.
Key Takeaways
- You pay 1.45 percent of your wages in Medicare tax, and your employer pays another 1.45 percent.
- Self-employed people pay the full 2.9 percent but can deduct half of it when filing taxes.
- Medicare tax applies to all wages with no income cap, unlike Social Security tax.
- Wages above $200,000 (single) or $250,000 (married filing jointly) are subject to an additional 0.9 percent Medicare tax.
Where Medicare Tax Appears on Your Paycheck
Your employer withholds Medicare tax automatically from each paycheck. On your pay stub, you will see a line labeled "Medicare" or "Med Tax" showing 1.45 percent of your gross pay. Your employer sends this amount plus their matching 1.45 percent to the IRS on your behalf.
If you earn more than the threshold for additional Medicare tax, your employer will also withhold the extra 0.9 percent once your year-to-date wages cross that line. This usually happens sometime in the middle of the year for high earners, though the exact timing depends on when you reach the threshold.
How Self-Employment Medicare Tax Works
If you are self-employed — a freelancer, contractor, or small business owner — you pay both the employee and employer portions of Medicare tax. This means 2.9 percent of your net self-employment income goes to Medicare tax, calculated on Schedule SE when you file your annual return.
The IRS lets you deduct half of your self-employment tax as a business expense, which reduces your taxable income. So while you pay 2.9 percent, you only lose about 1.45 percent in actual tax dollars after the deduction. Self-employed people also owe the additional 0.9 percent Medicare tax on income above the same thresholds as wage earners.
Medicare Tax vs. Social Security Tax
Medicare tax and Social Security tax are often confused because they are both withheld from paychecks and both fund federal programs. The key difference is the cap: Social Security tax stops once you earn $168,600 in a year (the 2024 limit, which changes yearly), but Medicare tax continues on every dollar you earn.
Social Security tax is 6.2 percent for employees and 6.2 percent for employers, totaling 12.4 percent. Medicare tax is 1.45 percent for each, totaling 2.9 percent. Together, these two taxes make up what is called FICA withholding on your pay stub.
The Additional Medicare Tax for High Earners
The additional 0.9 percent Medicare tax applies to wages above $200,000 for single filers, $250,000 for married couples filing jointly, and $125,000 for married couples filing separately. This threshold does not adjust for inflation — it has been the same since 2013.
Your employer withholds this extra tax once your wages cross the threshold in a calendar year. If you have multiple jobs or your spouse also works, you may end up paying more than you owe. In that case, you can claim the overpayment as a credit when you file your tax return.
What Happens to the Money You Pay
Medicare tax funds Part A of Medicare, which covers inpatient hospital care, skilled nursing facility stays, home health services, and hospice care. Part A is automatic for anyone 65 and older who has paid Medicare tax for at least 10 years (40 quarters). You do not pay a separate premium for Part A coverage.
The additional 0.9 percent Medicare tax collected from high earners does not go to traditional Medicare. Instead, it funds the insurance marketplaces and subsidies created by the Affordable Care Act. This tax was introduced in 2013 as part of the ACA's financing structure.
Frequently Asked Questions
Do I pay Medicare tax on all my income?
You pay Medicare tax on wages and self-employment income, but not on investment income, interest, or dividends. If you have a job and also earn money from investments, only the wages and self-employment portion are subject to Medicare tax.
What if my employer did not withhold Medicare tax?
Contact your employer's payroll department when ready. They are required by law to withhold it. If they refuse or go out of business, you may owe the tax when you file your return, but you can also report the issue to the IRS or your state labor department.
Can I opt out of paying Medicare tax?
No. Medicare tax is mandatory for all wage earners and self-employed people. There are no religious or personal exemptions, unlike some other taxes. The only way to avoid it is to have no income subject to the tax.
Do I get Medicare tax back as a refund?
Medicare tax is not refundable. It goes directly to fund Medicare Part A. However, if you overpaid the additional 0.9 percent Medicare tax due to having multiple jobs, you can claim that overpayment as a credit on your tax return.
How much Medicare tax will I pay in retirement?
Once you stop working, you no longer pay Medicare tax on wages. If you are self-employed in retirement, you still pay it on self-employment income. At 65, you become may be able to access for Medicare Part A if you paid the tax for at least 10 years.