The Medicare tax rate and how it works

Medicare tax is a payroll tax that comes out of your paycheck while you work. The rate is 2.9 percent of your wages — split between you and your employer. You pay 1.45 percent, and your employer pays the other 1.45 percent. If you are self-employed, you pay both parts yourself, which comes to 2.9 percent total.

This tax funds Medicare Part A, which covers hospital stays, skilled nursing care, and hospice. Unlike income tax, Medicare tax has no cap — you pay it on all your earnings, no matter how much you make in a year. The amount comes out automatically before you see your paycheck.

There is also an additional Medicare tax of 0.9 percent that applies only to higher earners. If you earn more than $200,000 as a single filer or $250,000 as a married couple filing jointly, you pay this extra 0.9 percent on the amount above those thresholds. Your employer withholds it the same way as the regular Medicare tax.

Key Takeaways

  • You pay 1.45 percent of your wages in Medicare tax, and your employer pays another 1.45 percent.
  • Self-employed people pay the full 2.9 percent themselves, split between the employee and employer portions.
  • An additional 0.9 percent Medicare tax applies to earnings above $200,000 (single) or $250,000 (married filing jointly).
  • Medicare tax has no wage cap — you pay it on all your income, unlike Social Security tax which stops after a certain amount each year.

The difference between Medicare tax and Social Security tax

Medicare tax and Social Security tax are two separate payroll taxes that appear on your pay stub. Social Security tax is 6.2 percent (employee) plus 6.2 percent (employer), but it only applies to the first $168,600 of your annual wages in 2024. Once you earn that amount, Social Security tax stops for the rest of the year. Medicare tax, by contrast, continues on every dollar you earn.

Social Security funds retirement, disability, and survivor benefits. Medicare tax funds your hospital insurance and is the foundation of your Medicare coverage when you turn 65. Both taxes are mandatory if you work in the United States, and both are withheld from your paycheck automatically.

Why you pay Medicare tax before you turn 65

You start paying Medicare tax the moment you begin working, even though you cannot use Medicare until age 65. The tax goes into a trust fund that covers all Medicare beneficiaries — not just your own future benefits. Think of it as a shared pool: your tax dollars help pay for current retirees' hospital care, and when you turn 65, current workers' taxes help pay for yours.

This is why you pay Medicare tax throughout your working life, regardless of whether you plan to retire at 65 or work longer. The tax is not optional and does not depend on your age or retirement plans.

What happens if you earn more than the threshold

If your income crosses the additional Medicare tax threshold, your employer (or you, if self-employed) withholds the extra 0.9 percent automatically. 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.

The threshold applies to your modified adjusted gross income, which includes wages, self-employment income, and certain other sources. If you have multiple jobs or your spouse also works, the combined income from all sources counts toward the threshold. You may owe additional Medicare tax when you file your tax return if your withholding was not enough, or you may receive a refund if too much was withheld.

How to read your pay stub

Your pay stub shows Medicare tax as a separate line item, usually labeled "Medicare" or "Med Tax." It will show the amount withheld for that pay period. To find your annual Medicare tax, multiply the per-paycheck amount by the number of paychecks you receive in a year, or add up all the Medicare tax lines from your pay stubs.

If you are self-employed, you calculate Medicare tax on your net self-employment income using Schedule SE when you file your taxes. The calculation is more complex because you account for both the employee and employer portions, but the rate remains 2.9 percent (plus 0.9 percent additional if you exceed the threshold).

Medicare tax and your future benefits

Paying Medicare tax does not determine how much you receive from Medicare later — Medicare is not a savings account where your contributions earn interest or come back to you. Instead, Medicare is an insurance program. Your tax dollars go into a shared pool that covers hospital care for all beneficiaries, and you draw from that same pool when you turn 65.

Everyone who reaches 65 and has worked at least 10 years in jobs covered by Medicare tax is may have access to to Medicare Part A (hospital insurance) at no monthly premium. The amount you paid in Medicare tax over your lifetime does not affect your coverage or your out-of-pocket costs in retirement.

Frequently Asked Questions

Why do I pay Medicare tax if I am not retired yet?

Medicare tax funds the hospital insurance program for all current beneficiaries, not just your own future benefits. You pay into the system throughout your working years so that when you turn 65, current workers' taxes help cover your care. It is a shared insurance pool, not a personal savings account.

Does my Medicare tax go up if I earn more money?

The rate stays the same — 1.45 percent — on all your wages. However, if you earn above $200,000 (single) or $250,000 (married filing jointly), you pay an additional 0.9 percent on the amount above those thresholds. So higher earners pay a higher total rate, but the base rate does not change.

What if I work for two employers at the same time?

Both employers withhold Medicare tax from your paychecks. If your combined income exceeds the additional Medicare tax threshold, you may owe extra tax when you file your return. You can request additional withholding from one employer to cover the expected liability, or you can settle it when you file.

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

No. Medicare tax applies only to wages from employment and self-employment income. Retirement account withdrawals, Social Security benefits, investment income, and pensions do not trigger Medicare tax. The additional 0.9 percent Medicare tax can explore to certain investment income, but only for high earners.

Can I opt out of paying Medicare tax?

No. Medicare tax is mandatory for all workers in the United States. There is no option to skip it or redirect it elsewhere. If you are employed, your employer withholds it automatically. If you are self-employed, you pay it when you file your taxes.