The Medicare tax rate and how it works

Medicare tax is 2.9% of your wages, split evenly between you and your employer — you pay 1.45% and your employer pays 1.45%. This comes out of your paycheck automatically if you work as an employee. If you are self-employed, you pay both sides, which totals 2.9% of your net earnings from self-employment.

There is no income limit on Medicare tax. Unlike Social Security tax, which stops after you earn a certain amount each year, Medicare tax applies to every dollar you make. This means higher earners pay more in total dollars, though the percentage stays the same.

If you earn over $200,000 as a single filer (or $250,000 if married filing jointly), an additional 0.9% Medicare tax applies to the income above that threshold. This extra tax also comes out of your paycheck and goes toward Medicare.

Key Takeaways

  • You pay 1.45% of your wages in Medicare tax, and your employer pays another 1.45%.
  • Self-employed people pay the full 2.9% because they are both employee and employer.
  • Medicare tax has no wage cap — it applies to all your earnings, unlike Social Security tax.
  • An extra 0.9% Medicare tax applies to wages over $200,000 (single) or $250,000 (married filing jointly).
  • Your Medicare tax payments fund Part A hospital insurance and are deducted from your paycheck before you see it.

Where your Medicare tax money goes

The Medicare tax you pay funds Medicare Part A, which covers hospital stays, skilled nursing care, hospice, and home health services. Part A is the only part of Medicare that is funded primarily through payroll taxes. The money goes into a trust fund that pays benefits to people who are currently on Medicare.

When you turn 65 and become may be able to access for Medicare, you do not pay a premium for Part A if you or your spouse paid Medicare taxes for at least 10 years (40 quarters). Your own Medicare tax contributions helped build the fund that now covers your hospital care.

How self-employed workers calculate Medicare tax

If you are self-employed, you calculate Medicare tax on your net self-employment income — the profit from your business after expenses, not your gross revenue. You pay 2.9% on this amount, plus the additional 0.9% if your income exceeds the thresholds mentioned above.

You can deduct half of your self-employment tax as a business expense on your tax return, which lowers your taxable income. This deduction recognizes that self-employed people pay both the employee and employer portions. You report self-employment tax on Schedule SE when you file your taxes.

Medicare tax and your paycheck stub

On your paycheck stub, Medicare tax appears as a line item labeled "Medicare" or "Med Tax." It is separate from Social Security tax (which is 6.2% on your side) and from federal income tax withholding. You can see exactly how much comes out each pay period.

If you have multiple jobs, Medicare tax is withheld from each paycheck. Unlike Social Security tax, there is no annual limit, so if you work two jobs and earn a high income, you may owe additional Medicare tax at tax time. You would report this on your tax return and either pay it or receive a refund depending on what was already withheld.

What happens if you owe additional Medicare tax

The additional 0.9% Medicare tax applies only to income above $200,000 (single filers) or $250,000 (married filing jointly). Your employer withholds this extra tax automatically if your wages alone exceed these amounts. If you have income from multiple sources — wages, self-employment income, or investment income — you may owe additional Medicare tax even if no single employer withheld it.

You report this on Form 8959 when you file your tax return. If you underpaid during the year, you owe the difference. If you overpaid, you receive a refund. This is one reason to review your tax situation if you have variable income or multiple jobs.

Medicare tax versus Medicare premiums

Medicare tax and Medicare premiums are different things. Medicare tax is what you pay now while working. Medicare premiums are what you pay after you turn 65 and enroll in Medicare — these are monthly charges for Part B (doctor visits), Part D (prescription drugs), and sometimes Part C (Medicare Advantage plans).

Your Medicare tax contributions do not reduce your premiums later. However, paying Medicare tax for 10 years does make you may be able to access for Part A without a premium. People who did not work long enough or did not pay Medicare tax may have to pay a Part A premium when they turn 65.

Frequently Asked Questions

Does Medicare tax stop when I turn 65?

No. If you continue working after 65, Medicare tax continues to come out of your paycheck at 1.45% (plus the additional 0.9% if applicable). The tax does not stop until you stop working or your income falls below the threshold for the additional tax.

Can I opt out of paying Medicare tax?

No. Medicare tax is mandatory for all employees and self-employed people. There is no religious or personal exemption, unlike some other taxes. It is withheld automatically from paychecks.

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

You can still enroll in Medicare Part A at 65, but you will pay a monthly premium. The premium is higher the fewer quarters you paid Medicare tax. If you paid for at least 30 quarters (7.5 years), your premium is lower than if you paid for fewer quarters.

How is Medicare tax different from Social Security tax?

Social Security tax is 6.2% on your side and has an annual wage cap (the amount changes yearly). Medicare tax is 1.45% with no wage cap. Both fund different programs — Social Security funds retirement, disability, and survivor benefits, while Medicare tax funds hospital insurance.

Do I pay Medicare tax on tips and bonuses?

Yes. Medicare tax applies to all wages, including tips, bonuses, and other compensation. Your employer withholds Medicare tax on these amounts just as they do on regular salary.