What Is Med EE Tax and How Is It Calculated?
Understand Medicare Employee Tax (Med EE tax), a crucial payroll deduction. Learn its purpose, calculation, and impact on your financial contributions.
“Med EE tax” refers to the Medicare Employee Tax, a federal payroll tax. This tax funds the Medicare program, which provides health insurance benefits to eligible individuals. It is a mandatory deduction from employee wages, contributing to the nation’s healthcare system.
Understanding Medicare Employee Tax
Medicare Employee Tax is the employee’s portion of the Medicare tax, part of the Federal Insurance Contributions Act (FICA) tax. FICA tax includes both Social Security and Medicare taxes, which are distinct federal payroll taxes. Medicare tax primarily funds Medicare Part A, covering hospital insurance. This includes inpatient hospital stays, skilled nursing facility care, hospice care, and some home healthcare services for individuals aged 65 or older, and younger people with certain disabilities or end-stage renal disease.
This tax is mandatory for nearly all workers in the United States, funding the federal health insurance program that provides medical benefits. The Medicare tax was established in 1965 as part of the Medicare program.
Calculating Medicare Employee Tax
The standard Medicare tax rate for employees is 1.45% of their gross wages. A key distinction for Medicare tax, unlike Social Security tax, is that there is no wage base limit. All earned income is subject to the 1.45% Medicare tax.
For high-income earners, an Additional Medicare Tax of 0.9% applies to wages exceeding certain thresholds. These thresholds are $200,000 for single filers, $250,000 for married filing jointly, and $125,000 for married filing separately. For example, a single filer earning $250,000 would pay 1.45% on the first $200,000 and 2.35% (1.45% + 0.9%) on the remaining $50,000. This additional tax is solely the employee’s responsibility, with no matching employer contribution.
Who is Responsible for Medicare Employee Tax?
Employees pay their 1.45% Medicare tax share through payroll withholding. Employers deduct this amount and contribute a matching 1.45% on behalf of their employees. This results in a total Medicare tax rate of 2.9% on wages.
Self-employed individuals pay both the employee and employer portions of Medicare tax, totaling 2.9% of their net earnings from self-employment. If their income exceeds the high-income thresholds, they also pay the additional 0.9% Medicare Tax. Self-employed individuals calculate and pay these taxes through estimated payments using Schedule SE (Form 1040).
How Medicare Employee Tax Appears
Medicare tax appears on pay stubs, often labeled “Medicare,” “Med,” or combined with Social Security as “FICA.” This section details withheld federal taxes.
The total amount of Medicare tax withheld from an employee’s pay throughout the year is reported on Form W-2, in Box 6, labeled “Medicare tax withheld.” For self-employed individuals, their Medicare tax is calculated on Schedule SE (Form 1040) and reported on their Form 1040. Reviewing these documents helps confirm accuracy.