What Is the Employer Portion of Medicare Tax?
Understand an employer's financial and procedural obligations for Medicare tax, from the standard employer-paid portion to handling requirements for high earners.
Employers are responsible for several payroll taxes, and one of the most consistent is Medicare tax. This tax is a component of the Federal Insurance Contributions Act (FICA) taxes, which also include Social Security. Both employers and their employees share the cost, with specific amounts being deducted from employee paychecks and a matching amount contributed by the employer. This system ensures funding for the federal hospital insurance program.
Calculating the Standard Medicare Tax
The employer’s portion of the Medicare tax is calculated at a fixed rate of 1.45%. This percentage is applied to an employee’s “Medicare wages,” a term that encompasses most forms of compensation. This includes regular salaries, hourly wages, bonuses, commissions, and certain fringe benefits.
A defining feature of the Medicare tax is the absence of a wage base limit. Unlike the Social Security tax, which stops applying once an employee’s earnings exceed an annual threshold, the Medicare tax applies to every dollar of an employee’s compensation. For instance, if an employee earns $60,000 annually, the employer’s Medicare tax liability for that employee for the year would be $870, which is calculated by multiplying $60,000 by 1.45%.
The employer is responsible for paying this amount to the government, in addition to the identical 1.45% that is withheld from the employee’s own pay. The combined contribution from both parties totals 2.9% of the employee’s Medicare wages.
Withholding the Additional Medicare Tax
Beyond the standard tax, employers have a responsibility related to the Additional Medicare Tax. This is a 0.9% tax levied on employee earnings that exceed certain thresholds. This is an employee-only tax with no employer match, so the employer’s role is to act as a collection agent by withholding and remitting the funds.
The requirement for an employer to begin withholding is triggered when an employee’s wages paid by that employer surpass $200,000 in a calendar year. The 0.9% tax is then applied to all subsequent wages earned by that employee for the remainder of the year, starting with the paycheck that crosses the threshold.
An employer’s duty to withhold is based solely on the wages it pays to the employee. The employer does not need to consider the employee’s tax filing status or any income the employee might have from other jobs or self-employment.
Depositing and Reporting Medicare Taxes
The employer’s 1.45% share, the employee’s 1.45% withheld share, and any withheld Additional Medicare Tax are all reported together. This information is filed using Form 941, the Employer’s QUARTERLY Federal Tax Return.
Tax payments are handled separately from filing Form 941 and must be made electronically using the Electronic Federal Tax Payment System (EFTPS). Paper coupons and checks are generally no longer used for these deposits.
The frequency of these deposits depends on the employer’s total tax liability. Businesses follow either a monthly or a semi-weekly deposit schedule, which is determined by a lookback period of their past tax liabilities. For example, under a monthly schedule, the total Medicare and other employment taxes from one month are due by the 15th of the following month.