Do Employees Pay Medicare Tax & How Is It Calculated?

Medicare tax is a federal payroll tax that helps fund the Medicare program, which provides health insurance primarily for individuals aged 65 or older, and also for certain younger people with disabilities. This tax is a mandatory contribution for most working individuals in the United States. Employees pay Medicare tax as a regular deduction from their earnings.

The Medicare program provides healthcare access for millions. It is separate from income tax, though both are federal taxes withheld from pay.

How Employees Pay Medicare Tax

Employees contribute to Medicare through a portion of the Federal Insurance Contributions Act (FICA) tax. FICA tax is a combined payroll tax that funds both Social Security and Medicare programs. For Medicare, the standard tax rate for employees is 1.45% of all earned wages.

There is no wage base limit for Medicare tax; every dollar of an employee’s taxable compensation is subject to this 1.45% rate. For example, if an employee earns $100, $1.45 would be withheld for Medicare tax. Employers typically withhold this tax directly from an employee’s paycheck.

Additional Medicare Tax

Some high-income employees are subject to an additional Medicare tax. This tax is an extra 0.9% on top of the standard 1.45% Medicare tax rate, making the total Medicare tax rate 2.35% for income exceeding certain thresholds. The specific income thresholds for this additional tax depend on the taxpayer’s filing status.

For single filers, heads of household, and qualifying widow(er)s, the additional Medicare tax applies to earned income above $200,000. For married couples filing jointly, the threshold is $250,000, and for married individuals filing separately, it is $125,000. This additional tax applies to Medicare wages and self-employment income exceeding these thresholds. Employers must begin withholding this 0.9% additional Medicare tax once an employee’s wages exceed $200,000 in a calendar year, regardless of the employee’s filing status.

Employer Contributions and Self-Employment Tax

Employers also contribute to Medicare by paying 1.45% of their employees’ wages. This means a total of 2.9% is contributed to Medicare for every dollar an employee earns: 1.45% from the employee and 1.45% from the employer.

Self-employed individuals are responsible for paying both the employee and employer portions of the Medicare tax. This totals 2.9% of their net earnings from self-employment. This 2.9% Medicare tax, along with the Social Security tax, constitutes their self-employment tax, which is paid quarterly as estimated taxes.

Locating Medicare Tax on Your Paycheck and W-2

Medicare tax contributions appear on pay stubs and annual wage statements. On a typical pay stub, the Medicare tax withheld is often identified by abbreviations such as “Med,” “Medicare,” or “MCR.”

Form W-2 provides an annual summary. Box 5, “Medicare wages and tips,” reports total wages subject to Medicare tax. Box 6, “Medicare tax withheld,” displays the total tax deducted for the year.