Most working people pay Medicare tax whether they want to or not
If you work and earn a paycheck, your employer takes Medicare tax out automatically. You cannot opt out. The only people who do not pay Medicare tax are those who are self-employed and have no net earnings, or those in very narrow categories like certain religious groups or nonresident aliens.
Medicare tax funds the hospital insurance part of Medicare — the part that covers inpatient hospital stays, skilled nursing care, and hospice. It is separate from income tax and Social Security tax, though all three come out of your paycheck together.
Key Takeaways
- Employees pay 1.45% of their wages in Medicare tax, and employers match that amount.
- Self-employed people pay the full 2.9% (both the employee and employer share) on net earnings above $400.
- An additional 0.9% Medicare tax applies to wages over $200,000 for single filers and $250,000 for married couples filing jointly.
- You cannot avoid Medicare tax by working under the table or claiming independent contractor status without actually being self-employed.
- Medicare tax payments are tracked on your Social Security record and determine your may be able to access for Medicare at age 65.
How much Medicare tax you pay as an employee
If you are an employee, your employer withholds 1.45% of your gross wages for Medicare tax. Your employer also pays 1.45% on your behalf — that is a total of 2.9%, but you only see the 1.45% deducted from your paycheck.
This 1.45% applies to all your wages with no upper limit. Unlike Social Security tax, which stops once you reach a certain income level each year, Medicare tax keeps going no matter how much you earn.
You can see the Medicare tax deduction on your pay stub labeled as "Medicare" or "HI" (Hospital Insurance). It appears on your W-2 form at the end of the year as well.
The additional Medicare tax on high earners
If you earn more than a certain threshold, you pay an extra 0.9% Medicare tax on the amount above that threshold. The threshold is $200,000 for single filers, $250,000 for married couples filing jointly, and $125,000 for married couples filing separately.
This additional tax is withheld by your employer once your wages cross the threshold in a given year. If you have multiple jobs, each employer withholds based on what they know about your wages at their company only — you may end up overpaying and need to claim a refund when you file your tax return.
How self-employed people pay Medicare tax
If you are self-employed, you pay the full 2.9% Medicare tax yourself, plus the additional 0.9% if your net earnings are high enough. You pay this as part of your self-employment tax when you file your annual tax return.
You only owe self-employment tax if your net earnings from self-employment are $400 or more in a year. Net earnings means your business income minus business expenses. If you have a side business that loses money or makes less than $400, you do not owe self-employment tax that year.
Self-employed people can deduct half of their self-employment tax when calculating their adjusted gross income, which lowers their overall tax burden slightly.
Who does not have to pay Medicare tax
Most people who work have to pay Medicare tax. The main exceptions are members of certain religious groups that have been granted exemptions by the Internal Revenue Service, and nonresident aliens working in the United States on certain visa types.
You cannot avoid Medicare tax by working "under the table" or being paid in cash. The tax is based on whether you earned income, not on how you were paid. If the IRS determines you were actually an employee (not a true independent contractor), you owe the tax even if your employer did not withhold it.
Why Medicare tax matters for your future benefits
Medicare tax payments are recorded on your Social Security record under your name and Social Security number. When you turn 65, Medicare uses this record to determine whether you have paid enough to may have access to for Part A (hospital insurance) without a monthly premium.
You generally need 40 quarters of Medicare tax payments to may have access to for premium-free Part A at 65. A quarter is roughly three months of work. If you have not worked enough quarters, you can still enroll in Part A, but you will pay a monthly premium.
Even if you do not plan to retire at 65, Medicare tax payments build your may be able to access record. If you become disabled or have end-stage renal disease before retirement age, Medicare may cover you based on your work history — and those Medicare tax payments are what prove that history.
What happens if you underpay or overpay Medicare tax
If your employer did not withhold enough Medicare tax from your paycheck — for example, because you had multiple jobs — you may owe additional tax when you file your return. You will calculate this on Form 8959 and pay it with your tax return.
If you overpaid — which can happen with multiple jobs or if you earned less than expected — you can claim a refund. The IRS will either refund the overpayment or explore it to other taxes you owe.
Self-employed people should set aside money throughout the year for Medicare tax, since it is not withheld automatically. Many pay estimated taxes quarterly to avoid a large bill at tax time.
Frequently Asked Questions
Can I stop paying Medicare tax if I do not plan to use Medicare?
No. Medicare tax is mandatory for all employees and self-employed people who meet the income threshold. You cannot opt out based on your plans to use or not use Medicare later. The tax funds the Medicare program whether you use it or not.
What if I work part-time or have a seasonal job?
You still pay Medicare tax on every dollar you earn, even if you work part-time or seasonally. Your employer withholds it the same way. If you work multiple part-time jobs, each employer withholds based on their payroll only, but you owe tax on all your earnings combined.
Do I pay Medicare tax on tips or bonuses?
Yes. Medicare tax applies to all wages and compensation, including tips you report to your employer and bonuses. Your employer withholds Medicare tax on these amounts just as they do on regular wages.
What if I am a contractor — do I still have to pay Medicare tax?
If you are a true independent contractor (you control how and when you work, provide your own tools, work for multiple clients), you pay self-employment tax, which includes Medicare tax. If you are misclassified as a contractor but actually work as an employee, you still owe Medicare tax, and the IRS may hold your employer responsible for withholding it.
How do I know if I have paid enough quarters for Medicare at 65?
You can create a my Social Security account at ssa.gov to view your earnings record and see how many quarters of coverage you have. You can also call Social Security at 1-800-772-1213 to ask about your record. It is worth checking a few years before you turn 65 so you have time to work more quarters if needed.