What Are Medicare Taxes & How Are They Calculated?
Understand the fundamentals of Medicare taxes, including how they are calculated, assessed, and remitted.
Medicare taxes support the nation’s healthcare program for the elderly and certain individuals with disabilities. These taxes contribute directly to the Hospital Insurance (HI) Trust Fund, funding Medicare Part A, which covers inpatient hospital care, skilled nursing facility care, hospice care, and some home health services. They are a mandatory contribution for income earners, ensuring access to healthcare benefits for eligible individuals.
Understanding Medicare Tax
Medicare tax is a payroll tax levied on earnings, forming part of the Federal Insurance Contributions Act (FICA) tax. It funds Medicare Part A, providing hospital insurance benefits. This tax is distinct from income tax and applies to all covered wages and net earnings from self-employment, without an income cap.
The responsibility for paying Medicare taxes is shared. Employees contribute a portion of their wages through payroll deductions. Employers contribute a matching amount, splitting the tax burden. Self-employed individuals pay both the employee and employer portions through the Self-Employment Contributions Act (SECA) tax. This structure ensures broad contributions to the Medicare program.
Calculating Your Medicare Tax
The standard Medicare tax rate is 1.45% for employees on all wages, and employers also pay a matching 1.45%, totaling 2.9%. All earned income is subject to this tax. For instance, if an employee earns $50,000, they would pay $725 in Medicare tax, and their employer would pay an additional $725.
Self-employed individuals pay the combined 2.9% Medicare tax on their net earnings from self-employment. When calculating this tax, 92.35% of net earnings from self-employment are considered subject to the tax. This adjustment accounts for the employer-equivalent portion of the self-employment tax. The resulting amount is then multiplied by the 2.9% Medicare tax rate.
An additional Medicare Tax of 0.9% applies to high-income earners. This surtax is imposed on wages, self-employment income, and Railroad Retirement (RRTA) compensation that exceed specific thresholds based on filing status. For 2025, these thresholds are $250,000 for married filing jointly, $125,000 for married individuals filing separately, and $200,000 for all other taxpayers, including single filers, head of household, and qualifying widow(er)s. Unlike the standard Medicare tax, there is no employer matching contribution for this additional 0.9% tax.
The Additional Medicare Tax is calculated on income that exceeds these specified thresholds. For example, a single filer earning $250,000 in wages would pay the standard 1.45% Medicare tax on the first $200,000, and then a combined 2.35% (1.45% + 0.9%) on the $50,000 exceeding the threshold. This tax is separate from the Net Investment Income Tax (NIIT), which is a 3.8% tax on certain investment income for high-income individuals. While both taxes apply to high-income earners, they apply to different types of income.
How Medicare Taxes Are Paid
For most employees, Medicare taxes are collected through payroll withholding. Employers deduct the employee’s share of Medicare tax from each paycheck. They then remit these withheld amounts, along with their matching contributions, to the government. This process ensures that taxes are paid throughout the year as income is earned.
Self-employed individuals pay their Medicare taxes through estimated tax payments, typically made quarterly. The IRS requires individuals to estimate their annual income and tax liability, including self-employment taxes, and make timely payments to avoid potential penalties. This “pay-as-you-go” system helps ensure that tax obligations are met consistently.
The Additional Medicare Tax is also collected through withholding or estimated payments. Employers must begin withholding the 0.9% Additional Medicare Tax from an employee’s wages once wages exceed $200,000 in a calendar year, regardless of the employee’s filing status. If an individual’s income from multiple sources or other income types (like self-employment or investment income) pushes them over their specific filing status threshold for the Additional Medicare Tax, they may need to adjust their income tax withholding by submitting a revised Form W-4 or make estimated tax payments to cover the additional liability.