How Much Is Medicare Tax on Your Paycheck?

Medicare tax is a federal payroll tax that helps fund the Medicare program, which provides health insurance primarily for individuals aged 65 or older, younger people with certain disabilities, and people with End-Stage Renal Disease. This tax is a component of the Federal Insurance Contributions Act (FICA) tax, alongside Social Security tax. Contributions from current workers and employers help pay for the healthcare benefits of eligible beneficiaries.

Standard Medicare Tax Calculation

For most employed individuals, Medicare tax is calculated at a standard rate of 1.45% of all gross wages. This tax applies to nearly all earned income, including salaries, wages, and tips. Unlike the Social Security tax, there is no wage base limit for Medicare tax.

The Medicare tax liability is typically split between the employee and the employer. Each party contributes 1.45% of the employee’s gross wages, resulting in a total contribution of 2.9% on those wages. Employers are responsible for withholding the employee’s portion directly from their paycheck and remitting both their share and the employee’s share to the Internal Revenue Service (IRS).

Additional Medicare Tax

An Additional Medicare Tax of 0.9% applies to earned income that exceeds certain threshold amounts. This extra tax is levied solely on the employee’s earnings; employers do not have a matching portion for this specific component.

The income thresholds for this additional tax depend on filing status: $200,000 for single individuals, $250,000 for those married filing jointly, and $125,000 for married individuals filing separately. Employers must begin withholding this additional 0.9% once an employee’s wages exceed $200,000 within a calendar year, regardless of the employee’s filing status.

Self-Employment Medicare Tax

Self-employed individuals, such as independent contractors or sole proprietors, are responsible for paying both the employee and employer portions of the Medicare tax. This combined self-employment tax rate for Medicare is 2.9% of their net earnings from self-employment.

For self-employment tax purposes, net earnings are generally calculated as 92.35% of the gross earnings from self-employment. This adjustment aims to put self-employed individuals on a comparable footing with employees, who do not pay FICA taxes on the employer’s share. Self-employed individuals can also deduct one-half of their total self-employment taxes paid when calculating their adjusted gross income for federal income tax purposes. This deduction applies to the combined Social Security and Medicare tax, but it does not include the 0.9% Additional Medicare Tax if applicable.

Locating Medicare Tax on Your Paycheck

Individuals can easily identify their Medicare tax contributions on their pay stubs. This deduction is typically listed as a separate line item, often labeled simply as “Medicare” or “Med.”

At the end of the year, an employee’s total Medicare wages and the Medicare tax withheld are reported on Form W-2, Wage and Tax Statement. Box 5 of Form W-2 displays the total Medicare wages and tips subject to Medicare tax for the year. Box 6 shows the total amount of Medicare tax withheld from the employee’s pay.