Medicare Tax
Tax Glossary Term
Definition
Medicare tax is the smaller of the two FICA components, charged at a flat 1.5% on all wages with no cap. Unlike Social Security tax, which stops at the wage base, Medicare tax applies to every dollar you earn. Employers match your 1.5% contribution for a combined 2.9%. The revenue funds Medicare Part A (hospital insurance), which provides coverage to Americans age 65 and older and certain younger people with disabilities. Since 2013, high earners also pay an Additional Medicare Tax of 0.9% on wages exceeding $200,000 (single filers) or $250,000 (married filing jointly). This surtax is paid only by the employee; the employer does not match it. For self-employed individuals, the combined Medicare rate is 2.9% on 92.35% of net earnings, plus the 0.9% Additional Medicare Tax if applicable. Unlike income tax withholding, Medicare tax has no allowances or adjustments — your employer withholds it from every paycheck starting with the first dollar. There is also no year-end reconciliation or refund process for Medicare tax (unless you had excess withholding from multiple jobs). Because Medicare tax is uncapped, it becomes an increasingly significant portion of total tax for high-income earners, especially those above the Additional Medicare Tax threshold.
Example
Annual wages: $300,000
Regular Medicare: $300,000 x 1.5% = $4,350
Additional Medicare (on amount over $200,000): $100,000 x 0.9% = $900
Total Medicare tax: $5,250