Do You Have to Pay Medicare Tax? Who Owes and How Much

Medicare tax is a fundamental component of the United States tax system, playing a significant role in funding the Medicare program. This program provides health insurance primarily for individuals aged 65 or older, some younger people with disabilities, and people with End-Stage Renal Disease. As a payroll tax, Medicare tax contributes directly to the financial stability of this essential healthcare system. It applies to wages and self-employment income, ensuring a broad base of support for Medicare services.

Determining Your Medicare Tax Obligation

Most working individuals in the United States have a Medicare tax obligation. The specific way Medicare tax is handled depends on their employment status.

Employees generally see Medicare tax withheld directly from their wages. Employers are responsible for deducting this tax from each paycheck and remitting it to the government. Both the employee and the employer contribute to Medicare tax, with each paying a portion of the total.

Self-employed individuals, such as independent contractors or small business owners, are responsible for paying both the employee and employer portions of Medicare tax. This payment occurs through self-employment tax, which also includes Social Security tax. Income subject to Medicare tax is typically their net earnings from self-employment, meaning gross income less allowable business expenses.

Calculating Medicare Tax Rates

The Medicare tax rate is a percentage of an individual’s earnings, and it differs slightly based on employment type and income level. For most employees, the Medicare tax rate is 1.45% of their gross wages. Employers also pay a matching 1.45%, bringing the total Medicare tax to 2.9% of wages.

Self-employed individuals pay the combined rate of 2.9% on their net earnings from self-employment. Unlike Social Security tax, there is no wage base limit for Medicare tax; all covered earnings are subject to it.

An additional Medicare Tax applies to high-income earners. This tax is 0.9% and applies to earned income exceeding certain thresholds: $200,000 for single filers, $250,000 for married couples filing jointly, and $125,000 for married individuals filing separately. This additional tax only applies to the employee’s portion of Medicare tax; employers do not pay a matching amount for this extra 0.9%.

Methods of Medicare Tax Collection

Medicare tax is collected through different mechanisms depending on the source of income. For individuals who are employees, Medicare tax is primarily collected via payroll withholding. Employers are legally obligated to deduct the employee’s share of Medicare tax from their wages and then remit both the employee and employer portions to the Internal Revenue Service (IRS). These withheld amounts are reported on the employee’s Form W-2, Wage and Tax Statement, at the end of the year.

Self-employed individuals and others with income not subject to standard payroll withholding are generally required to make estimated tax payments throughout the year. This includes not only Medicare tax but also Social Security tax and income tax. These payments are typically made quarterly using Form 1040-ES, Estimated Tax for Individuals, to ensure tax obligations are met as income is earned.

Regardless of the collection method, all Medicare tax obligations are ultimately reconciled when individuals file their annual income tax returns using Form 1040. At this point, any underpayments or overpayments from withholding or estimated taxes are settled. Timely and accurate payments through these methods help taxpayers avoid potential penalties for underpayment.

Unique Circumstances for Medicare Tax

While most workers contribute to Medicare, certain situations present unique rules regarding Medicare tax obligations. Some federal, state, and local government employees hired before April 1, 1986, may be exempt if continuously employed by that entity and members of a qualifying public retirement system.

Non-resident aliens may also have different Medicare tax liabilities depending on their visa status and the nature of their income. Generally, non-resident aliens performing services in the U.S. as employees are subject to Medicare taxes, but specific exemptions exist for certain visa types like F-1, J-1, M-1, and Q-1 for a limited period, typically while engaged in academic or training activities. After a certain period or if their status changes, they may become subject to these taxes.

For household employees, often referred to as “nanny tax,” employers are responsible for withholding and paying Medicare taxes if they pay cash wages above a certain annual threshold, which is $2,800 or more in 2025. The employer must withhold the employee’s share and remit both portions, or they can choose to pay both halves themselves. This applies to various household workers, not just nannies, and employers must obtain an Employer Identification Number (EIN) and report these wages, often on Schedule H (Form 1040).