The Medicare tax is a federal tax imposed on income-earning individuals in the United States. The Medicare tax rate is 2.9% in 2024. You pay half of that through automatic paycheck deductions, and your employer pays the other half.

The purpose of the Medicare tax is to offset the costs of Medicare. It ensures that Medicare can cover medical expenses like doctor visits, hospital stays, and prescription drugs for beneficiaries, helping to make healthcare more accessible for millions of Americans.

The ‘Why’ of Medicare Taxes: Funding the Program

The government uses the Medicare tax to fund Medicare, a federal health insurance program for people 65 and older, as well as younger people with eligible disabilities.

The Medicare tax has two components:

Hospital Insurance (HI) Trust Fund
Supplemental Medicare Insurance (SMI) Trust Fund

The HI Fund covers the costs of Medicare Part A, which pays for inpatient stays in hospitals and skilled nursing facilities. Because of this funding, many people do not pay anything for Part A care.

The SMI Fund is used to pay for Medicare Parts B and D. Part B covers doctor visits, outpatient care, medical supplies, and preventive services for recipients. Part D helps cover the cost of prescription drugs. Only people who earn more than the income threshold each year contribute to this fund, which means Medicare recipients still have to pay a monthly premium for these coverages.

How the Medicare Tax Works

The Medicare tax is a payroll tax imposed on employees and employers in the United States. It’s automatically deducted from your wages every paycheck, so you do not have to worry about paying anything extra.

Employers contribute an equal amount on behalf of their employees. However, if you’re self-employed, your tax rate is different. Because you’re both an employee and an employer, you must pay both the employee and employer portions of the tax.

Current Medicare Tax Rates

Employment Status	Filing Status	Tax Rate	Additional Medicare Tax
Employee	Single	1.45%	Additional 0.9% for income over $200,000
Employee	Married filing jointly	1.45%	Additional 0.9% for income over $250,000
Employee	Married filing separately	1.45%	Additional 0.9% for income over $125,000
Self-employed	Any	2.90%	Additional 0.9% on same income limits based on filing status
Employer	N/A	1.45%	N/A

The total Medicare tax rate is 2.9%, which breaks down to 1.45% for employees and 1.45% for employers. You will pay the total 2.9% tax rate if you are self-employed. High-income earners may be subject to an additional Medicare tax.

What Is the Additional Medicare Tax?

Individuals with wages or self-employment income above certain thresholds must pay an extra 0.9% on income exceeding those thresholds. This is known as the Additional Medicare Tax.

This additional tax only applies to the portion of income that exceeds the income threshold. For example, if you are filing as a single person and earn $230,000, you would only pay the Additional Medicare Tax on the $30,000 above the threshold.

This tax helps fund the SMI Trust Fund. Medicare uses the SMI Trust Fund to partially offset costs for Part B and Part D, which offer medical and prescription drug coverage, respectively.

Employers are responsible for withholding the additional Medicare tax from employees’ wages once they surpass the applicable threshold. However, there is no employer portion of this tax, so employers do not pay anything extra.

When Do You Pay the Medicare Tax?

You pay Medicare taxes on every paycheck. You may see it listed as “Medicare” or “FICA Medicare” in the deduction portion of your itemized pay stub. Some employers also list the annual Medicare taxes you’ve paid to date. You can also find this amount on your yearly W-2 Wage and Tax Statement on line 6.

Because self-employed people do not get regular paychecks, they have two options for paying the Medicare tax:

Pay when filing their annual federal taxes using Schedule SE Form 1040
Paying quarterly estimated taxes

If you wait to pay your taxes on Form 1040, you may face underpayment of estimated tax penalties. Paying estimated taxes takes a little guesswork, but if you overpay, you can receive a refund when you file your annual taxes.

The estimated tax deadlines for each quarter are:

Quarter 1: April 15
Quarter 2: June 15
Quarter 3: September 15
Quarter 4: January 15 (of the next year)

See It In Action

To understand how much you might pay in Medicare taxes, let’s consider someone who makes $75,000 a year. Here’s how the Medicare taxes break down with the 1.45% employed tax rate and 2.9% self-employed tax rate:

Person with an employer: $1,087.50
Self-employed: $2,175

This is the basic Medicare tax rate, but things become trickier if you exceed the $200,000 income limit. Let’s consider another example of a person who made $250,000 in a year. The basic Medicare taxes would be as follows:

Person with an employer: $3,625
Self-employed: $7,250

Because they earned over $200,000, they must pay the additional Medicare tax on the income over that amount. That means they need to pay an extra 0.9% on $50,000, or an extra $450.

The rate is the same for employed and self-employed individuals. Here is what the total Medicare tax bill would look like in both instances:

Person with an employer: $4,075
Self-employed: $7,700

Putting It All Together

The Medicare tax is a payroll tax that funds the Medicare program, providing healthcare coverage primarily for older adults and individuals with disabilities. Employees and employers each contribute 1.45% of earned income, totaling 2.9%. Additionally, high-income earners may be subject to an extra 0.9% tax on income exceeding certain thresholds. Self-employed individuals are responsible for both the employee and employer portions of the tax.

Now that you better understand these rates, you can more accurately calculate your taxes. If you need more help figuring out how to calculate what you owe, consider partnering with an experienced tax professional for more assistance.

Frequently Asked Questions

To opt out of paying the Medicare tax, you need to be a member of a recognized religious group that meets the following requirements:

The group is opposed to accepting insurance and medical benefits.
The group has a reasonable level of living for its members.
The group has existed continuously since December 31, 1950.

You cannot file a waiver if you already received Medicare benefits. To opt out of paying the Medicare tax, you can fill out Form 4029 when filing your taxes.

Yes, everyone has to pay the Medicare tax regardless of whether or not they choose to enroll in Medicare. The sole exception is if you’re a member of a recognized religious group eligible for tax exemption. Even if you plan to maintain your own private insurance, you never know when you might need to take advantage of Medicare due to job loss or a disability.

If non-resident aliens receive wages from an American company, they are typically responsible for paying Medicare taxes. However, there are a few exceptions, including:

Employees of foreign governments with A-visas
Crew members of a ship or aircraft with D-visas
Students, scholars, professors, and other academics with F-visas, J-visas, M-visas, or Q-visas
Employees of international organizations with G-visas
Certain nonimmigrants with H-2 and H-2A visas

The Medicare tax directly benefits Medicare. Funds are used to offset the costs of Medicare Part A hospital insurance. The current Medicare tax rate is 1.45% for the employee and 1.45% for the employer, or 2.9% total.

On the other hand, Social Security tax is used to pay out Social Security benefits to older adults and those with disabilities. The current Social Security tax rate is 6.2% for the employee and 6.2% for the employer, or 12.4% total.

Generally, people do not pay Medicare tax on investment income. This includes any income you see because of dividends, interest payments, and capital gains. That’s because you’ve already paid Medicare taxes on the money you contributed to a retirement account. Therefore, the IRS does not double charge you.

There is an exception in the form of the Net Investment Income Tax. Under this rule, you pay a 3.8% Medicare tax on net investment income that’s over $200,000 for individuals and $250,000 for married people filing jointly.

Disputes regarding Medicare tax calculations are typically addressed through the IRS. If you believe there’s an error in your tax calculation, contact the IRS or consult a tax professional for assistance in resolving the issue. Provide documentation and any relevant information to support your claim for a potential adjustment or refund.

What Is the Medicare Tax?

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