What Medicare tax costs you right now

Medicare tax is a payroll deduction that comes out of your paycheque if you work, or a payment you make yourself if you are self-employed. The rate is 1.45% of your wages, and your employer matches that amount — so 2.9% total goes to Medicare, but you only see 1.45% taken from your pay. If you earn over $200,000 as a single filer (or $250,000 married filing jointly), you pay an additional 0.9% on income above that threshold, with no employer match.

The amount you pay changes only if your income changes or your employment status changes. There is no cap on Medicare tax the way there is on Social Security tax — it applies to every dollar you earn, no matter how much you make in a year.

Key Takeaways

  • You pay 1.45% of your wages in Medicare tax, and your employer pays another 1.45%, for a combined 2.9%.
  • If you earn over $200,000 (single) or $250,000 (married filing jointly), you pay an extra 0.9% Medicare tax on income above those thresholds.
  • Self-employed workers pay both the employee and employer portions — 2.9% total — plus the additional 0.9% if income exceeds the threshold.
  • Medicare tax has no income cap, so high earners pay it on every dollar they make, unlike Social Security tax.
  • The amount you paid in Medicare tax over your working years does not determine how much Medicare costs you in retirement.

How the 1.45% rate breaks down between you and your employer

When you work for an employer, the 1.45% Medicare tax is split: your employer withholds 1.45% from your paycheque and pays another 1.45% directly to Medicare on your behalf. You see only your half deducted. Your employer's half is a business expense they report on their tax return, but it does not appear on your pay stub as money you receive.

This split exists for Social Security tax as well (6.2% each), but Medicare tax works the same way. The total cost to fund Medicare from your wages is 2.9%, but you only feel 1.45% of it in your take-home pay.

The additional 0.9% Medicare tax for higher earners

If your income crosses certain thresholds, you owe an extra 0.9% Medicare tax on the amount above the threshold. The thresholds are $200,000 for single filers, $250,000 for married couples filing jointly, and $125,000 for married couples filing separately. This extra tax applies to wages, self-employment income, and certain investment income.

Unlike the standard 1.45% Medicare tax, the additional 0.9% is not matched by your employer. If you are self-employed, you pay the full 0.9% yourself. Your employer withholds this extra amount from your paycheque if your income is expected to exceed the threshold, though you may owe more or receive a refund when you file your tax return, depending on your actual income for the year.

What self-employed workers pay

If you are self-employed, you pay both the employee and employer portions of Medicare tax yourself. That means 2.9% of your net self-employment income goes to Medicare, plus the additional 0.9% if your income exceeds the threshold. You report this on Schedule SE when you file your taxes.

Self-employed Medicare tax is calculated on your net profit after business expenses, not your gross revenue. You can deduct half of your self-employment tax as a business expense on your tax return, which reduces your taxable income slightly. The IRS provides worksheets and software to help you calculate the exact amount.

How Medicare tax differs from Medicare premiums and deductibles

Medicare tax and Medicare premiums are two separate things. Medicare tax is what you pay while you work — it funds the Medicare system as a whole. Medicare premiums are what you pay when you are enrolled in Medicare, usually after age 65. Your lifetime Medicare tax payments do not reduce your premiums or determine your coverage level.

Part A (hospital insurance) has no monthly premium for most people who paid Medicare tax for at least 10 years. Part B (medical insurance) has a monthly premium that varies by income. Part D (prescription drug coverage) has a separate premium. Deductibles and copays explore when you actually use care. None of these costs are tied to how much Medicare tax you paid during your working years.

Where your Medicare tax goes

Medicare tax funds two trust funds: the Hospital Insurance Trust Fund (Part A) and the Supplementary Medical Insurance Trust Fund (Parts B and D). Part A covers inpatient hospital care, skilled nursing, hospice, and home health. Parts B and D are funded partly by premiums and partly by general tax revenue, not directly by Medicare tax.

The Hospital Insurance Trust Fund is the one most directly supported by Medicare tax. When you turn 65 and enroll in Medicare, you draw from this fund if you use hospital services. The fund's solvency — whether it has enough money to pay claims — is tracked by the Medicare Trustees and reported to Congress each year. As of recent reports, the fund is projected to become depleted within a specific timeframe, which may affect future policy, but this does not change what you pay now.

Frequently Asked Questions

Does Medicare tax stop when I turn 65?

No. If you continue to work after 65, you still pay Medicare tax on your wages. The tax does not stop until you stop earning income from employment or self-employment. You can enroll in Medicare at 65 regardless of whether you are still working.

Can I get a refund of Medicare tax I paid over my lifetime?

No. Medicare tax is not a savings account or investment. It funds the Medicare system for current beneficiaries. You do not get back the amount you paid; instead, Medicare covers your hospital and medical costs when you enroll, which may be more or less than you paid in tax over your working years.

What if I did not pay Medicare tax for 10 years?

You can still enroll in Medicare at 65, but you may have to pay a premium for Part A (hospital insurance) if you have fewer than 30 quarters of Medicare tax coverage. The premium is higher than the standard Part A premium. You should contact Social Security to find out how many quarters of coverage you have.

Does my spouse's Medicare tax affect my Medicare costs?

No. Your spouse's work history and Medicare tax payments do not change your Part A premium or your coverage. Each person's Medicare is based on their own work record. Your spouse can have different coverage and premiums than you.

If I work part-time, do I still pay Medicare tax?

Yes. Medicare tax applies to all wages, regardless of whether you work full-time or part-time. Your employer withholds it from every paycheque. If you have multiple part-time jobs, each employer withholds Medicare tax separately.