Yes, Medicare tax is mandatory for most workers in the United States

If you work as an employee, your employer takes Medicare tax directly from your paycheck — you do not have a choice about whether to pay it. Medicare tax funds the hospital insurance (Part A) that covers inpatient care, skilled nursing, hospice, and home health services. The rate is 1.45% of your wages, and your employer matches that amount. If you are self-employed, you pay both the employee and employer portions, totaling 2.9% of your net earnings.

There is no income threshold below which Medicare tax stops. Even if you earn very little, the tax applies. However, there are specific groups of workers who are exempt, and there are situations where you may owe additional Medicare tax depending on your income level.

Key Takeaways

  • Employees pay 1.45% of gross wages in Medicare tax, matched by their employer, with no income limit or threshold.
  • Self-employed workers pay 2.9% of net earnings, which is the combined employee and employer share.
  • Certain groups — including some religious sect members, some nonresident aliens, and railroad employees under a separate system — are exempt from Medicare tax.
  • High earners pay an additional 0.9% Medicare tax on wages above $200,000 (single) or $250,000 (married filing jointly).
  • You cannot opt out of Medicare tax; it is withheld automatically from paychecks and self-employment income.

Who is exempt from Medicare tax

Most workers must pay Medicare tax, but a small number of groups do not. Members of certain religious sects that are recognized by the Internal Revenue Service and that have a history of providing for their own elderly and disabled members can request exemption. You must file Form 4029 with the IRS to claim this exemption, and it requires proof that your sect has a genuine practice of caring for its members without relying on government programs.

Nonresident aliens who are temporarily in the United States on certain visa types — such as F-1 student visas or J-1 exchange visitor visas — are generally exempt while in that status. Railroad employees are covered under a separate railroad retirement system instead of Medicare, so they do not pay Medicare tax. Some government employees hired before specific dates may also fall under different systems, though this is rare.

If you think you might be exempt, you should speak with your employer's payroll department or a tax professional. Claiming an exemption you are not may have access to to can result in back taxes, penalties, and interest.

The additional Medicare tax for high earners

In addition to the standard 1.45% Medicare tax, workers who earn above a certain income threshold pay an extra 0.9% Medicare tax on the amount over that threshold. For single filers, the threshold is $200,000 per year. For married couples filing jointly, it is $250,000. For married people filing separately, it is $125,000.

This additional tax was introduced in 2013 as part of the Affordable Care Act. Your employer is required to withhold it automatically once your wages exceed the threshold in a given year. If you have multiple jobs or if you are self-employed in addition to being employed, you may owe this tax even if no single employer's withholding reaches the threshold. In that case, you would settle the amount when you file your tax return.

How self-employed workers pay Medicare tax

If you are self-employed, you pay Medicare tax on your net earnings from self-employment. The rate is 2.9% for the standard Medicare tax, plus the additional 0.9% if your income exceeds the thresholds mentioned above. You calculate this on Schedule SE (Self-Employment Tax) when you file your annual tax return.

Self-employed workers pay both the employee and employer portions of Medicare tax because they are technically both. However, you can deduct half of your self-employment tax when calculating your adjusted gross income, which provides some tax relief. If you have employees, you still withhold Medicare tax from their paychecks at the standard 1.45% rate and match it.

What happens if you do not pay Medicare tax

You cannot legally avoid paying Medicare tax if you are required to pay it. If your employer fails to withhold it, you are still liable for the amount owed, plus penalties and interest. If you are self-employed and do not report self-employment income, the IRS can assess the tax retroactively.

Deliberately evading Medicare tax is tax fraud and can result in criminal charges, fines, and imprisonment. If you believe your employer is not withholding Medicare tax correctly, you can contact the IRS or file a complaint with the Department of Labor. If you are unsure whether you owe the tax, consulting a tax professional is the safest approach.

Medicare tax and your benefits later

Medicare tax you pay now goes into the Hospital Insurance Trust Fund, which pays for Medicare Part A benefits when you turn 65 or become disabled. You do not have a separate account; the money is pooled to pay current beneficiaries. To be covered by Medicare Part A at 65, you generally need to have paid Medicare tax for at least 10 years (40 quarters) during your working life.

If you have not worked long enough to meet this requirement, you may still be able to enroll in Part A by paying a monthly premium. Your Medicare tax payments are tracked by Social Security, so it is important to make sure your earnings record is accurate. You can view your earnings record online through your Social Security account or request a paper statement.

Frequently Asked Questions

Can I opt out of paying Medicare tax?

No. If you are an employee or self-employed and do not fall into one of the narrow exempt categories, Medicare tax is mandatory. Your employer must withhold it, and you cannot choose not to pay it. The only way to avoid it is to meet the strict requirements for religious sect exemption or to work in a job covered by an alternative system like railroad retirement.

What if I work part-time or earn very little?

Medicare tax applies to all wages, no matter how small. Even if you earn $100 in a year, Medicare tax is withheld. There is no minimum income threshold that exempts you. However, if you are self-employed and your net earnings are below $400, you do not have to file a self-employment tax return.

Do I pay Medicare tax on investment income or retirement withdrawals?

No. Medicare tax applies only to wages from employment and net earnings from self-employment. Investment income, interest, dividends, and withdrawals from retirement accounts like IRAs or 401(k)s are not subject to Medicare tax. However, high earners may owe a separate Net Investment Income Tax of 3.8% on certain investment income.

If I move to another country, do I still have to pay Medicare tax?

If you are a U.S. citizen or resident alien working abroad, you generally still owe Medicare tax on your worldwide income. However, you may be able to exclude some foreign earned income from U.S. tax under the Foreign Earned Income Exclusion. The rules are complex, so consult a tax professional who specializes in expatriate taxes.

What if my employer did not withhold Medicare tax from my paycheck?

Contact your employer's payroll department when ready and ask them to correct it. If they refuse or if the employer has gone out of business, you may need to pay the amount yourself when you file your tax return. You can also file a complaint with the Department of Labor or contact the IRS for guidance on your specific situation.