Medicare tax takes 2.9% of your wages, split between you and your employer

Medicare tax is 2.9% of your gross income. You pay half of it — 1.45% — directly from your paycheck. Your employer pays the other half. If you are self-employed, you pay the full 2.9% yourself, though you can deduct half of it when you file taxes.

This is separate from Social Security tax, which is 12.4% combined (6.2% from you, 6.2% from your employer). Together, these two taxes are called FICA taxes — Federal Insurance Contributions Act. They fund Medicare hospital insurance and Social Security retirement and disability benefits.

There is also an additional Medicare tax of 0.9% that applies only if your income exceeds a threshold. For 2024, that threshold is $200,000 for single filers and $250,000 for married couples filing jointly. This extra tax comes entirely from your paycheck — your employer does not match it.

Key Takeaways

  • The standard Medicare tax rate is 1.45% from your paycheck and 1.45% from your employer, totaling 2.9% of your wages.
  • Self-employed workers pay the full 2.9%, but can deduct half of it as a business expense on their tax return.
  • An additional 0.9% Medicare tax applies to wages above $200,000 (single) or $250,000 (married filing jointly) and comes only from your paycheck.
  • Medicare tax has no wage cap — you pay it on all your income, unlike Social Security tax which stops after you earn a certain amount each year.

How Medicare tax appears on your pay stub

On your pay stub, you will see a line labeled "Medicare" or "Med Tax" showing 1.45% of your gross pay deducted. This amount goes to the federal government and funds Medicare Part A, which covers hospital stays, skilled nursing care, and hospice services.

If your income is above the threshold for your filing status, you will also see a line for "Additional Medicare Tax" or "0.9% Medicare" showing the extra amount withheld. Your employer is required to begin withholding this once your year-to-date wages cross the threshold.

The employer's matching portion does not appear on your pay stub — it is a cost to the employer that you do not see directly. However, it is part of the total cost of employing you.

Why Medicare tax has no wage cap

Social Security tax stops once you earn $168,600 in a single year (the 2024 limit, which changes annually). Medicare tax does not have this cap. You pay 1.45% on every dollar you earn, no matter how much you make.

This is why high earners pay the additional 0.9% Medicare tax — it was added in 2013 as a way to fund the Affordable Care Act. The additional tax applies to all wages above the income threshold, with no upper limit.

If you work multiple jobs or have both W-2 wages and self-employment income, you may owe additional Medicare tax even if no single employer withheld it. You would settle this when you file your tax return.

Self-employed Medicare tax and the deduction

If you are self-employed, you pay both the employee and employer portions of Medicare tax — the full 2.9%. This is called self-employment tax, and it is calculated on your net profit from self-employment.

The good news is that you can deduct half of your self-employment tax when you calculate your adjusted gross income on your tax return. This reduces the amount of income subject to income tax, though not to self-employment tax itself.

Self-employed workers also owe the additional 0.9% Medicare tax if their net self-employment income exceeds the threshold. This is calculated and reported on Schedule SE and Form 8959 when you file.

How to calculate your Medicare tax withholding

For W-2 employees, the math is straightforward: take your gross pay and multiply by 0.0145. If you earn $3,000 in a paycheck, your Medicare tax is $43.50. Your employer withholds this automatically.

If you are self-employed, you calculate self-employment tax on Schedule SE using your net profit from self-employment. The calculation is slightly more complex because you deduct half the self-employment tax before calculating income tax, but the IRS provides worksheets and software can handle this.

For the additional 0.9% Medicare tax, you do not need to calculate it yourself if you have one employer — they will withhold it once you cross the threshold. If you have multiple employers or self-employment income, you may need to adjust your withholding or make estimated tax payments to avoid owing at tax time.

Medicare tax versus Medicare premiums

Medicare tax and Medicare premiums are different things. Medicare tax is the payroll deduction that funds the Medicare system. Medicare premiums are what you pay to enroll in Medicare coverage once you turn 65 or become may be able to access due to disability.

Part A (hospital insurance) is usually free if you or your spouse paid Medicare tax for at least 10 years. Part B (medical insurance) has a monthly premium that varies based on your income. Part D (prescription drug coverage) also has a premium.

The Medicare tax you pay during your working years does not go into a personal account for you — it funds current Medicare beneficiaries. When you become may be able to access for Medicare, it is funded by the Medicare tax paid by current workers.

What happens if you overpay Medicare tax

If you work for multiple employers in the same year, each one withholds Medicare tax independently. Unlike Social Security tax, there is no annual cap, so you cannot overpay Medicare tax and get a refund.

However, if you are self-employed and also have W-2 wages, you might owe additional Medicare tax that was not withheld. You would pay this when you file your return, or adjust your estimated tax payments for the next quarter.

The additional 0.9% Medicare tax can also create an overpayment situation if you have multiple employers and your combined wages exceed the threshold, but each employer withheld as if you were below it. In this case, you would claim the overpayment as a credit on your tax return.

Frequently Asked Questions

Does Medicare tax come out before or after income tax?

Medicare tax is withheld from your gross pay before income tax is calculated. It is a payroll tax, separate from federal income tax. Both are deducted from your paycheck, but they fund different programs and are calculated independently.

Can I avoid paying Medicare tax?

No. Medicare tax is mandatory for all W-2 employees and self-employed workers. There are no exemptions based on religion, income level, or other status, unlike some other taxes. The only way to reduce it is to reduce your income.

What if I earn income from investments or rental property?

Investment income and rental income are not subject to Medicare tax. Only wages from employment and net profit from self-employment are subject to Medicare tax. Dividends, interest, and capital gains do not trigger Medicare tax, though they may be subject to income tax.

Does Medicare tax explore to tips?

Yes. Tips are considered wages and are subject to Medicare tax. Your employer should withhold Medicare tax on tips you report, and you should include reported tips when calculating self-employment tax if you are self-employed.

What is the additional Medicare tax used for?

The additional 0.9% Medicare tax, enacted in 2013, was designed to help fund the Affordable Care Act and shore up Medicare's Hospital Insurance Trust Fund. It applies only to high earners and has no wage cap.