How the Medicare Tax Rate Works
Medicare tax is part of FICA, short for the Federal Insurance Contributions Act. FICA is the federal payroll tax that funds Social Security and Medicare. How you pay it depends on whether you’re an employee or self-employed.
Medicare Tax for Employees
If you’re an employee, your employer collects your share through withholding. Withholding means money is held back from each paycheck and sent to the IRS for you.
According to the IRS withholding rates, you pay 1.45% and your employer matches it. Medicare has no wage limit, which sets it apart from Social Security.
| Tax | Employee rate | Employer rate | Total rate | Wage cap |
|---|---|---|---|---|
| Medicare | 1.45% | 1.45% | 2.9% | None |
| Social Security | 6.2% | 6.2% | 12.4% | Yes |
Say you earn $60,000 a year. About $870 is withheld from your pay for Medicare, and your employer pays another $870.
Medicare Tax for Self-Employed Workers
If you work for yourself, you are both employer and employee, so you pay both halves through self-employment tax. Self-employment tax is the Social Security and Medicare tax for people who work for themselves. Under IRS self-employment rules, the combined rate is 15.3%, and 2.9% of that goes to Medicare.
You owe self-employment tax if your net earnings are $400 or more. Net earnings are your business income minus your business expenses. The tax applies to 92.35% of your net earnings, and all of that amount is subject to Medicare tax.
You can deduct the employer-equivalent half of your self-employment tax. That’s the portion an employer would normally pay.
Additional Medicare Tax for High Earners
On top of the standard rate, the Additional Medicare Tax adds 0.9% once your income passes a threshold. Your threshold depends on your filing status. Filing status is the category you file your return under, such as single or married filing jointly.
| Filing status | Additional Medicare Tax threshold |
|---|---|
| Married filing jointly | $250,000 |
| Married filing separately | $125,000 |
| All other filers | $200,000 |
The tax applies to Medicare wages and self-employment income above your threshold. It also covers railroad retirement (RRTA) compensation. Here’s how it adds up for a single filer with $250,000 in wages. You’d pay 1.45% on all wages, or $3,625. You’d also pay 0.9% on the $50,000 above $200,000, or $450. Your total Medicare tax would be $4,075.
How Employers Withhold the Additional Tax
Your employer must withhold the extra 0.9% on wages over $200,000 in a calendar year, regardless of your filing status. Employers don’t pay a matching share, per the IRS questions and answers.
Because withholding ignores filing status, it may not match what you owe. For example, a married couple could each earn under $200,000 but earn more than $250,000 combined. Neither employer would withhold the extra tax, yet the couple would still owe it.
To cover a gap, you can request extra withholding on Form W-4. You can also make estimated tax payments, which are payments you send the IRS yourself during the year.
Reporting the Additional Medicare Tax
You figure the Additional Medicare Tax on Form 8959. Then you report it on Form 1040, 1040-SR or 1040-NR. If you’re not sure you need to file a return at all, start with who has to file.
