How Much Medicare Tax Is Withheld From a Paycheck?

Medicare tax is a federal payroll tax that funds the Medicare program. This program provides health insurance primarily for individuals aged 65 or older, as well as certain younger people with disabilities or end-stage renal disease. Medicare tax is a mandatory contribution.

Standard Medicare Tax Withholding

The standard Medicare tax rate applied to an employee’s wages is 1.45%. This tax has no wage base limit, meaning all earned wages are subject to this deduction. Employers are responsible for withholding this 1.45% from an employee’s gross pay.

Employers also contribute a matching 1.45% on behalf of each employee, bringing the total contribution for standard Medicare tax to 2.9% of wages. This combined contribution is part of the Federal Insurance Contributions Act (FICA) taxes. For example, if an employee earns $1,000 in gross wages, $14.50 (1.45%) will be withheld from their paycheck for Medicare tax, and their employer will contribute an additional $14.50. The employer’s obligation includes remitting both the employee’s withheld amount and their own matching contribution to the Internal Revenue Service (IRS).

Additional Medicare Tax

An Additional Medicare Tax of 0.9% applies to wages, self-employment income, and railroad retirement (Tier 1) income that exceeds certain threshold amounts. These thresholds depend on the taxpayer’s filing status. For single filers, heads of household, or qualifying widow(er)s, the threshold is $200,000. For married individuals filing jointly, the threshold is $250,000, while for those married filing separately, it is $125,000. This additional tax is paid solely by the employee and is not matched by the employer.

Employers are required to begin withholding the Additional Medicare Tax from an employee’s wages once they exceed $200,000 in a calendar year, regardless of the employee’s filing status. The employer continues to withhold this 0.9% on all wages paid above the $200,000 threshold for the remainder of the year. Individuals whose combined income from multiple sources (including wages from different employers or self-employment income) pushes them over their specific filing status threshold may need to make estimated tax payments. They may also adjust their withholding on Form W-4 to cover any potential Additional Medicare Tax liability not fully withheld by an employer.

Medicare Tax for Self-Employed Individuals

Self-employed individuals pay Medicare tax as part of the Self-Employment (SE) Tax. This tax covers both Social Security and Medicare contributions for those who work for themselves. The Medicare portion of the SE tax for self-employed individuals is 2.9%, which represents the combined employee and employer share of the tax.

This 2.9% Medicare tax is calculated on net earnings from self-employment. Generally, only 92.35% of net earnings from self-employment are subject to SE tax. For instance, if a self-employed individual has $50,000 in net earnings, the Medicare tax would be calculated on $46,175 ($50,000 multiplied by 0.9235).

Self-employed individuals can deduct one-half of their total SE tax from their gross income when calculating their adjusted gross income (AGI). Self-employed individuals are responsible for paying these taxes directly to the IRS, typically through estimated tax payments made quarterly.

Exemptions and Specific Cases

While Medicare tax is a broad requirement, certain specific situations may lead to differences in withholding or exemptions. Some non-resident aliens may not be subject to Medicare tax withholding. Additionally, certain state and local government employees might have different Medicare tax obligations depending on their specific retirement plans, if they were hired before a certain date. Individuals covered under the Railroad Retirement Tax Act have their own system for contributing to Medicare through railroad retirement taxes.

Reviewing Medicare Tax on Your Documents

Individuals can verify their Medicare tax withholding by reviewing their pay stubs and year-end tax documents. For employees, the amount of Medicare tax withheld is reported on Form W-2. Specifically, Box 6 of Form W-2 shows the total Medicare tax withheld from wages for the year. Box 5 on Form W-2 reports the Medicare wages and tips, which is the total amount of earnings subject to Medicare tax.

Self-employed individuals report their self-employment tax, including the Medicare portion, on Schedule SE (Form 1040). This form is then submitted with their annual income tax return, Form 1040.