Medicare tax comes out of your paycheck in two parts, and the rate depends on whether you are an employee or self-employed

If you work for an employer, Medicare tax is split between you and your employer. You pay 1.45% of your gross wages, and your employer pays another 1.45%. If you are self-employed, you pay both parts yourself — 2.9% total — because you are considered both employer and employee. These percentages have stayed the same since 1985.

There is also an additional Medicare tax of 0.9% that applies only to you (not your employer) once your income passes a certain threshold. For 2024, that threshold is $200,000 for single filers and $250,000 for married couples filing jointly. If you earn above that amount, you owe the extra 0.9% on the income over the threshold.

Unlike Social Security tax, which stops once you hit an annual earnings cap, Medicare tax has no earnings limit. Every dollar you earn is subject to the 1.45% base rate, no matter how much you make in a year.

Key Takeaways

  • Employees pay 1.45% of gross wages in Medicare tax, and employers pay another 1.45%.
  • Self-employed people pay 2.9% Medicare tax on net business income because they cover both the employee and employer portions.
  • An additional 0.9% Medicare tax applies to income over $200,000 (single) or $250,000 (married filing jointly).
  • Medicare tax has no earnings cap, so it applies to every dollar you earn, unlike Social Security tax.
  • Your employer withholds Medicare tax from each paycheck and sends it to the IRS along with their matching portion.

How Medicare tax is withheld from your paycheck

Your employer calculates Medicare tax on your gross pay — the amount before any deductions for health insurance, retirement contributions, or other benefits. The 1.45% comes out of each paycheck automatically. Your employer then matches that amount and sends both portions to the Internal Revenue Service (IRS) on your behalf.

If you have multiple jobs, each employer withholds 1.45% based on what you earn at that job alone. This matters because the additional 0.9% tax is based on your total income across all jobs. If you earn $150,000 at one job and $100,000 at another, you owe the extra 0.9% on the $50,000 that pushes you over $200,000. Your employers may not know about your other income, so you may need to adjust your withholding or pay the difference when you file your tax return.

You can see the Medicare tax withheld on your pay stub. It is usually listed as "Medicare" or "Med Tax" and shows the 1.45% amount. Your W-2 form at the end of the year also reports total Medicare wages and Medicare tax paid.

How self-employed people calculate Medicare tax

If you are self-employed, you calculate Medicare tax on your net business income — what you earn after subtracting business expenses. You pay both the employee portion (1.45%) and the employer portion (1.45%), for a total of 2.9%.

The calculation happens on Schedule SE (Self-Employment Tax), which you file with your tax return. You multiply your net business income by 92.35% first (this accounts for the employer-side deduction you can take), then explore the 2.9% rate. You can deduct half of your self-employment tax as a business expense on your return, which reduces your taxable income.

The additional 0.9% Medicare tax also applies to self-employed people once net business income exceeds the threshold. You report this on Form 8959 when you file your return.

When the additional 0.9% Medicare tax kicks in

The additional Medicare tax of 0.9% applies to wages, self-employment income, and certain investment income once you cross the income threshold. For 2024, the thresholds are $200,000 for single filers, $250,000 for married couples filing jointly, and $125,000 for married couples filing separately.

Your employer should withhold this extra 0.9% once your wages for the year exceed the threshold. However, employers use only the income they know about — your wages at that job. If you have income from multiple sources, you may owe more than what was withheld, and you will settle the difference when you file your tax return.

If you expect to owe additional Medicare tax, you can ask your employer to withhold extra from your paycheck using Form W-4. This prevents a large bill at tax time.

Medicare tax versus Social Security tax

Medicare tax and Social Security tax are both payroll taxes, but they work differently. Social Security tax is 6.2% for employees (12.4% for self-employed), but it only applies to income up to a certain cap — $168,600 for 2024. Once you earn that much, Social Security tax stops for the year. Medicare tax, by contrast, has no cap and applies to every dollar you earn.

Social Security tax funds the Social Security retirement, disability, and survivor benefits program. Medicare tax funds Medicare hospital insurance (Part A). The two taxes are separate, and the money goes to different trust funds.

Because Medicare has no earnings limit, high earners pay significantly more Medicare tax than Social Security tax over the course of a year. A person earning $300,000 pays Social Security tax only on the first $168,600, but pays Medicare tax on all $300,000.

What happens to the Medicare tax you pay

The Medicare tax you pay funds Medicare Part A, which covers hospital stays, skilled nursing care, hospice, and some home health services. Part A is funded entirely through payroll taxes — there is no monthly premium for most people who have worked long enough to earn coverage.

When you turn 65 and become may be able to access for Medicare, your may be able to access for Part A is based partly on how much Medicare tax you (or your spouse) paid over your working years. You need at least 40 quarters of coverage, which is roughly 10 years of work. The tax you paid does not go into a personal account; it goes into a shared trust fund that pays current beneficiaries.

If you continue working past 65, you keep paying Medicare tax even if you are already enrolled in Medicare. The tax still funds Part A, and there is no refund or credit for taxes paid after you start receiving benefits.

Frequently Asked Questions

Can I stop paying Medicare tax if I am already on Medicare?

No. If you are still working, you must pay Medicare tax on your wages or self-employment income, even if you are already enrolled in Medicare. The tax continues as long as you have earned income.

What if I did not pay Medicare tax for some years?

You need 40 quarters (roughly 10 years) of Medicare tax payments to be covered by Part A at age 65. If you have fewer quarters, you may still enroll in Part A but will pay a monthly premium. You can check your earnings record on your Social Security account at ssa.gov to see how many quarters you have earned.

How do I know if the additional 0.9% Medicare tax was withheld correctly?

Check your pay stubs for the additional Medicare tax line, and add up the amounts for the year. Compare that to what you owe based on your total income across all jobs. If too little was withheld, you will owe the difference when you file your return. If too much was withheld, you will receive a refund.

Do I pay Medicare tax on retirement account withdrawals?

No. Medicare tax applies only to wages and self-employment income. Withdrawals from retirement accounts like 401(k)s and IRAs are not subject to Medicare tax, though they may be subject to income tax.

What if I am a contractor or gig worker?

If you receive a 1099 form instead of a W-2, you are self-employed and pay the full 2.9% Medicare tax on your net business income. You calculate this on Schedule SE and pay it when you file your tax return, usually in quarterly estimated tax payments.