What Type of Tax Is Medicare and Who Pays It?
Demystify Medicare tax. Learn its nature, how it's funded, and your role in this crucial federal healthcare contribution.
Medicare tax is a federal payroll tax. It is a component of the Federal Insurance Contributions Act (FICA) tax, which also includes Social Security tax. The primary purpose of Medicare tax is to fund the Medicare program, a federal health insurance initiative. This program provides healthcare coverage primarily for individuals aged 65 and older, as well as certain younger people with disabilities.
Understanding Medicare Tax
Medicare tax is a mandatory contribution dedicated to supporting the Hospital Insurance (HI) portion of the Medicare program, known as Medicare Part A. These funds specifically cover inpatient hospital stays, skilled nursing facility care, hospice care, and some home healthcare services. Nearly all working individuals in the U.S. contribute to Medicare through this tax.
This tax is generally paid by employees, employers, and self-employed individuals. For employees, the Medicare tax rate is 1.45% of their gross wages, and employers also contribute a matching 1.45% for each employee. Self-employed individuals are responsible for paying both the employee and employer portions, totaling 2.9% of their net earnings from self-employment.
Calculating Medicare Tax
The standard Medicare tax rate for employees is 1.45% of all earned income, including wages, salaries, and tips. Employers match this contribution with an additional 1.45%. Medicare tax applies to all covered wages without any wage base limit, meaning there is no cap on the amount of income subject to this tax.
Self-employed individuals calculate their Medicare tax as part of their self-employment tax. They pay the combined employee and employer rate of 2.9% on their net earnings from self-employment. This calculation typically applies to 92.35% of their net earnings. Self-employed individuals can deduct one-half of their self-employment taxes, including the Medicare portion, when calculating their adjusted gross income for income tax purposes.
An additional Medicare Tax of 0.9% applies to high-income earners. This surtax is levied on Medicare wages, self-employment income, or a combination of both that exceeds certain thresholds. For single filers, the threshold is $200,000; for married individuals filing jointly, it is $250,000; and for married individuals filing separately, the threshold is $125,000.
Unlike the standard Medicare tax, this additional 0.9% is paid only by the employee or self-employed individual and is not matched by the employer. Employers are required to begin withholding this additional tax once an employee’s wages exceed $200,000 in a calendar year, regardless of the employee’s filing status.
Medicare Tax and Social Security
Both Medicare and Social Security taxes are collected under the Federal Insurance Contributions Act (FICA). These taxes are typically withheld from paychecks, funding distinct government programs. While they share the FICA umbrella, their purposes differ. Medicare tax funds the Medicare program, which provides health insurance, whereas Social Security tax primarily funds retirement, disability, and survivor benefits.
A distinction between these two taxes lies in their application to income. Social Security tax has an annual wage base limit, meaning income earned above a specific threshold is not subject to Social Security tax. For example, in 2025, the Social Security wage base limit is $176,100. In contrast, Medicare tax has no wage base limit and applies to all earned income, regardless of the amount.
The tax rates for Social Security and Medicare also differ. The Social Security tax rate is 6.2% for both the employee and employer, totaling 12.4%. For Medicare, the rate is 1.45% for both the employee and employer, amounting to 2.9%.