What Does MED-R Mean on My Paycheck?
Understand the meaning of "MED-R" on your paycheck. This guide clarifies a common payroll deduction and its significance.
When reviewing your paycheck, you may see a deduction labeled “MED-R.” This refers to Medicare tax. Understanding this deduction clarifies how your earnings contribute to a significant federal program. This article explains the meaning of “MED-R,” how it is calculated, and its purpose.
What is Medicare Tax (MED-R)?
Medicare tax, or MED-R, is a federal payroll tax designed to fund the Medicare program. It falls under the umbrella of Federal Insurance Contributions Act (FICA) taxes, which also include Social Security tax. FICA taxes are mandatory contributions from both employees and employers. The Medicare tax primarily supports Medicare Part A, also known as Hospital Insurance.
Medicare Part A covers essential services such as inpatient hospital care, skilled nursing facility care, hospice care, and some home health services. By contributing through this tax, individuals help ensure the continued operation of this health insurance system for eligible Americans.
How Medicare Tax is Calculated
Medicare tax is calculated as a percentage of your gross wages, with no wage base limit, meaning all earned income is subject to this tax. The employee portion of the Medicare tax rate is 1.45% of taxable wages. Your employer contributes an equal 1.45%, making the total Medicare tax rate 2.9% on your wages. Self-employed individuals are responsible for both portions, resulting in a 2.9% Medicare tax rate on their net earnings.
Higher earners pay an additional Medicare tax of 0.9% on wages, self-employment income, and railroad retirement compensation exceeding certain thresholds. These thresholds are $200,000 for single filers, $250,000 for married couples filing jointly, and $125,000 for married individuals filing separately. This additional tax is paid only by the employee; employers do not match it. Employers begin withholding this additional tax once an employee’s wages for the calendar year exceed $200,000.
Why Medicare Tax is Deducted
The deduction of Medicare tax from your paycheck is mandatory for most employed individuals, serving as a direct contribution to the Medicare program. These payroll contributions are pooled into the Hospital Insurance (HI) Trust Fund, which is used to pay for healthcare services covered under Medicare Part A.
Medicare provides health coverage primarily for individuals aged 65 or older. It also extends to certain younger individuals with disabilities and those diagnosed with End-Stage Renal Disease (ESRD) or Amyotrophic Lateral Sclerosis (ALS). Your contributions through these payroll deductions help establish your eligibility for Medicare benefits when you meet the program’s criteria. These tax dollars are important for the financial stability and ongoing provision of healthcare services through this federal program.