Medicare tax is a payroll deduction that funds the Medicare program

Medicare tax is a percentage of your wages that you and your employer both pay into the federal Medicare system. The money goes into a trust fund that pays for hospital insurance, medical insurance, and prescription drug coverage for people 65 and older, as well as some younger people with disabilities or end-stage renal disease.

You pay Medicare tax on every dollar you earn, with no upper wage limit. Your employer matches your contribution. If you are self-employed, you pay both the employee and employer portions yourself. The tax rate has been the same since 1985, though Congress can change it.

Medicare tax is separate from Social Security tax, though both come out of your paycheck. You cannot opt out of either one. The money you pay in now does not sit in an account with your name on it — it goes directly to current Medicare beneficiaries. When you turn 65, current workers' Medicare taxes will help pay for your coverage.

Key Takeaways

  • Medicare tax is 1.45 percent of your wages, plus a matching 1.45 percent from your employer, for a total of 2.9 percent.
  • An additional 0.9 percent Medicare tax applies to wages over $200,000 per year for single filers and $250,000 for married couples filing jointly.
  • Self-employed people pay both the employee and employer portions, totaling 2.9 percent on net earnings, plus the additional 0.9 percent tax on income above the threshold.
  • Medicare tax has no wage cap — you pay it on every dollar you earn, unlike Social Security tax which stops after you reach a certain annual income.

The two standard Medicare tax rates

The standard Medicare tax rate is 1.45 percent of your gross wages. Your employer withholds this from your paycheck and sends it to the Internal Revenue Service. At the same time, your employer pays an equal 1.45 percent into the Medicare system on your behalf. You see only your half deducted from your pay.

If you work for multiple employers in the same year, each one withholds 1.45 percent from your wages. There is no coordination between employers, so you could end up overpaying. When you file your tax return, you can claim a refund for the excess Medicare tax withheld.

Self-employed people calculate Medicare tax on their net self-employment income — that is, your business income minus business expenses. You pay both the employee portion (1.45 percent) and the employer portion (1.45 percent), for a total of 2.9 percent. You can deduct half of this as a business expense when you file your taxes.

The additional Medicare tax on high earners

If your wages exceed a certain threshold, you pay an additional 0.9 percent 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.

Your employer withholds the additional 0.9 percent Medicare tax once your wages cross the threshold in that calendar year. If you have multiple jobs, each employer withholds based only on what they pay you, not your total income from all sources. This can result in underwithholding. You will owe the difference when you file your tax return.

Self-employed people must calculate and pay the additional Medicare tax themselves when they file their annual return. Unlike the standard Medicare tax, there is no employer match for the additional 0.9 percent — you pay the full amount.

What Medicare tax pays for

Medicare tax funds three parts of the Medicare program. Part A covers hospital stays, skilled nursing facility care, hospice, and home health services. Part B covers doctor visits, outpatient services, and medical equipment. Part D covers prescription drugs.

Medicare Part A is funded almost entirely by Medicare tax. Part B and Part D are funded partly by Medicare tax and partly by general federal income tax revenue and beneficiary premiums. When you turn 65, you become may be able to access for these benefits regardless of how much Medicare tax you paid during your working years.

Medicare tax also funds coverage for people under 65 who have been on Social Security Disability Insurance for at least two years, and for people of any age with end-stage renal disease or ALS.

How to check your Medicare tax record

Your Social Security Statement shows how much Medicare tax you have paid over your lifetime. You can view your statement online at ssa.gov by creating a my Social Security account. The statement also shows your estimated Social Security benefits at different ages.

Your annual W-2 form from your employer shows how much Medicare tax was withheld that year. The amount appears in box 6 of the form. If you are self-employed, you report Medicare tax on Schedule SE when you file your taxes.

If you notice an error in your Medicare tax record, contact the Social Security Administration. Errors are usually caught and corrected automatically, but it is worth checking if you have had a name change, worked under multiple names, or had a significant gap in earnings.

Medicare tax and your future benefits

Paying Medicare tax does not determine whether you will receive Medicare benefits at 65. You become may be able to access based on age alone, or based on disability or end-stage renal disease status, regardless of your tax history. Even if you never paid Medicare tax, you can still enroll in Medicare at 65 if you are a U.S. citizen or permanent resident who has lived in the country for at least five years.

However, if you did not pay Medicare tax for at least 30 quarters (roughly seven and a half years) during your working life, you will have to pay a higher Part A premium when you enroll. Most people who worked full-time for several years will meet this requirement.

The amount of Medicare tax you paid does not affect your monthly benefit amount. Medicare is not a savings account. Your current Medicare tax payments go to current beneficiaries, and future workers' payments will fund your coverage.

Frequently Asked Questions

Can I get a refund of Medicare tax I paid?

You can get a refund only if you overpaid due to multiple employers or high earner status. If you worked for two employers and each withheld Medicare tax, you may have overpaid the additional 0.9 percent tax. File your tax return to claim the refund. You cannot get a refund of the standard 2.9 percent Medicare tax straightforward because you did not use Medicare benefits.

What happens to Medicare tax if I stop working?

Once you stop working, you stop paying Medicare tax. Your past Medicare tax payments remain on your record and count toward your may be able to access. If you return to work later, you resume paying Medicare tax on your wages.

Do I pay Medicare tax on Social Security benefits?

No. Medicare tax is withheld only from wages and self-employment income. Social Security benefits are not subject to Medicare tax, though they may be subject to income tax depending on your total income.

Is Medicare tax the same as a Medicare premium?

No. Medicare tax is a payroll deduction you pay while working. A Medicare premium is a monthly charge you pay after you enroll in Medicare at 65. The two are separate. Your Medicare tax history may affect your Part A premium if you did not work long enough, but it does not reduce your monthly costs.

What if I am self-employed and did not pay Medicare tax?

If you had self-employment income but did not report it or pay Medicare tax, you can file amended returns to correct the record. The Social Security Administration can help you establish a work history. Contact them to discuss your situation and the steps to update your record.