How Much is Medicare Tax Withholding?

Medicare tax withholding is a mandatory payroll tax that plays a fundamental role in funding the Medicare program. This federal health insurance program primarily provides coverage for individuals aged 65 or older, and also extends to younger people with certain disabilities. It is a direct deduction from earned income, designed to help sustain the Medicare trust funds for future healthcare needs.

Current Medicare Tax Rates

The current Medicare tax rate is 1.45% for employees, with employers also contributing an equivalent 1.45%, totaling 2.9% of an employee’s wages. This tax applies to all earned income, distinguishing it from Social Security tax which has an annual wage base limit. There is no such limit for Medicare tax, meaning every dollar of an employee’s covered wages is subject to this rate. This tax is a component of the Federal Insurance Contributions Act (FICA) tax, which also includes Social Security tax. For self-employed individuals, the responsibility includes paying both the employee and employer portions of the Medicare tax, meaning they contribute the full 2.9% of their net earnings from self-employment towards Medicare through the self-employment tax.

How Medicare Tax is Calculated

Medicare tax is straightforwardly calculated as a percentage of an employee’s gross wages. For instance, if an employee earns $1,000 in gross wages during a pay period, the Medicare tax withheld from their paycheck would be $14.50 (1.45% of $1,000). Employers are required to match this 1.45% contribution, remitting both the employee’s and employer’s shares to the government. For individuals who are self-employed, the 2.9% Medicare portion of the self-employment tax is applied to their net earnings derived from self-employment activities. This ensures self-employed individuals contribute their share to Medicare, mirroring the combined employee and employer contributions.

Understanding Additional Medicare Tax

An additional Medicare tax of 0.9% applies to individuals whose income exceeds specific thresholds. These thresholds are $200,000 for single filers, $250,000 for those married filing jointly, and $125,000 for married individuals filing separately. This supplemental tax is levied solely on the employee and is not matched by the employer. Employers are generally required to begin withholding this 0.9% tax once an employee’s wages for the calendar year exceed $200,000, irrespective of the employee’s filing status. This withholding continues for the remainder of the calendar year once the threshold is met.

Locating Your Medicare Withholding Information

Information regarding your Medicare withholding can be readily found on your pay stubs. This deduction is typically labeled as “Medicare Tax,” “MED,” or may be included as part of “FICA” tax. For a comprehensive annual summary, your Form W-2, Wage and Tax Statement, provides crucial details. Box 5 on Form W-2 reports your total Medicare wages and tips, while Box 6 indicates the amount of Medicare tax that was withheld from your earnings for the year. Self-employed individuals calculate and report their Medicare tax as part of their self-employment tax on Schedule SE (Form 1040), ensuring their contributions are properly accounted for.