What Is Medicare Tax and How Much Do You Have To Pay?
Medicare tax is taken out of your paycheck to pay for Medicare Part A, which covers hospital stays for seniors and people with disabilities.
The total Medicare tax amount is split between employers and employees, each paying 1.45% of the employee's income. High-income earners pay a slightly higher percentage. If you're self-employed, you typically pay the tax with quarterly estimated tax filings.
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What does Medicare tax mean?
Medicare tax is a federal income tax that pays for a portion of Medicare.
Because of the nearly $400 billion paid in Medicare payroll taxes during the year, about 69 million seniors and people with disabilities have access to hospital care, skilled nursing and hospice.
Generally, you need to pay Medicare taxes if you’re living and working in America.
The Medicare tax is grouped together under the Federal Insurance Contributions Act (FICA). That means when you're looking at your paycheck, you may see the Medicare tax combined with the Social Security tax as a single deduction for FICA.
Medicare was created in 1965 to make health insurance more affordable for those age 65 and over.
Many seniors have lower incomes after retirement, yet their health costs typically rise because they need more care. Before Medicare, a private policy would often cost more than a senior could afford.
In addition, insurance companies would sometimes cancel policies if they decided someone was too high risk. With Medicare, no one can be dropped for being high risk.
What's the current Medicare tax rate?
The Medicare tax rate is 1.45%.
This is the amount you'll see come out of your paycheck. The company you work for has to match this with an extra 1.45% for a total contribution of 2.9% of your income.
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Medicare tax rate
Medicare tax | Rate |
|---|---|
| You pay | 1.45% |
| Your employer pays | 1.45% |
If you make a high income, you'll pay an extra 0.9% on any amount you earn above $200,000 if you’re an individual, or $250,000 if you’re married and filing jointly. For example, a single person who makes $220,000 per year would pay an extra $180 in taxes, which is 0.9% of $20,000.
Extra Medicare tax for high-income earners
Medicare tax | Rate |
|---|---|
| Base rate you pay | 1.45% |
| Extra charge for high-earners | 0.9% |
| Your employer pays | 1.45% |
Keep in mind that if you’re self-employed, you will need to pay the full 2.9% yourself. This tax toward Medicare is included in your self-employment tax that is typically paid every three months.
The amount of money you pay taxes on will depend on how much you make after subtracting some of your business costs. You can use a form from the IRS, called Schedule SE, to help you find this number.
Even though the tax rate is higher when you're self-employed, it's being paid on a smaller portion of income because the government only taxes you on 92.35% of earnings minus any business costs.
You have to pay the 0.9% extra Medicare tax if you’re self-employed and make more than $200,000 as an individual ($250,000 if you’re married).
This extra Medicare tax doesn’t actually pay for Medicare. Instead, it helps people who earn a low income afford coverage through their state health exchange.
Medicare tax for self-employed
Medicare tax | Rate |
|---|---|
| Rate you pay on 92.35% of net earnings | 2.9% |
| Extra charge for high-earners | 0.9% |
How does the Medicare tax work?
Both you and your employer pay the Medicare tax each pay cycle, so you don’t have to pay a monthly rate for Medicare Part A (hospital stays) later on.
Since Medicare tax is subtracted from your regular salary, you will only pay income tax on what you earn after it and other contributions, such as your monthly rate for health insurance and any money you set aside for a health savings account or retirement account like a 401(k) or IRA, are taken out.
Your employer automatically collects Medicare tax for you and sends it to the IRS through regular electronic deposits.
What is the Medicare tax used for?
The Medicare tax pays for Medicare Part A (hospital insurance).
Medicare Part A pays for you to stay in the hospital, also called inpatient care. This includes overnight hospital stays, skilled nursing care, some home health services and end of life care.
The Medicare tax only pays for Medicare Part A. You need to pay a monthly rate for Medicare Part B (doctor visits). If you choose to get extra coverage, you’ll typically need to pay for a Medicare Supplement (Medigap) or Part D (drug coverage) plan.
Many Medicare Advantage (Part C) plans have no monthly rate. These plans are sold and managed by private companies, but most funding comes from the government.
What wages are subject to the Medicare tax?
You'll pay the Medicare tax on all types of taxable income.
This includes your regular wages, overtime, paid time off, tips and bonuses. Although you no longer have to pay regular federal income taxes on your first $25,000 of tips, you still have to pay Medicare taxes on all of your tips.
There is no cap on the amount of income you pay Medicare taxes on. That’s different from the Social Security tax, which you pay only on the first $184,500 of your annual earnings.
Some pretax deductions may be excluded from Medicare wages, but others are included.
- You won't pay the Medicare tax on pretax payments for medical insurance or some contributions toward a health savings account (HSA).
- You have to pay Medicare taxes on retirement account contributions and monthly rates for some life insurance.
Are Medicare taxes charged on investment income?
Yes, you have to pay an extra 3.8% on investment income or any household income above $200,000 as a single person ($250,000 for a married couple), whichever is less.[/tooltip]This tax applies to dividends, interest and any profits you made from selling stocks or other investments.
This tax helps pay for Medicare, but it’s not strictly a Medicare tax. The money goes to a general fund where it’s used for a variety of purposes, including Affordable Care Act (ACA) plans and Medicare Parts A and D.
Frequently asked questions
What is Medicare tax?
Medicare tax is taken directly from your paycheck, and it pays for Medicare Part A (hospital stays). If you or a spouse pays Medicare taxes for at least 10 years, you don’t need to pay a monthly rate for Medicare Part A.
What is the Medicare tax rate?
The Medicare tax rate is 1.45% of your income. Your employer also pays another 1.45%, and you have to pay the full 2.9% if you’re self-employed. You also typically have to pay an extra 0.9% on any income above $200,000 as an individual ($250,000 if you’re married).
Do you get Medicare tax back?
No, you don’t get your Medicare tax back. But you don’t need to pay for Medicare Part A when you enroll in Medicare later on.
Methodology and sources
Information relating to American tax laws came primarily from the Internal Revenue Service (IRS). Other sources include the Social Security Administration (SSA), the Centers for Medicare & Medicaid Services (CMS) and KFF.
About the Author
Former Senior Writer
Talon Abernathy is a former ValuePenguin Senior Writer who specialized in health insurance, Medicare and Medicaid. He also contributed to other insurance verticals including home, renters, auto, motorcycle and flood insurance.
Talon came to ValuePenguin in 2023. Since his arrival, he's helped to expand the site's health insurance-related content offerings. He enjoys helping readers understand the ins and outs of America's all too complicated health insurance landscape.
Before coming to ValuePenguin, Talon worked as a freelance writer. His prior work has touched on a broad range of personal finance-related topics including credit-building strategies, small business incorporation tactics and creative ways to save for retirement.
Insurance tip
In many parts of the country, you can qualify for a free Silver health insurance plan if you meet certain income requirements. Government subsidies in the form of premium tax credits and cost-sharing reductions may mean you'll pay nothing for coverage.
Expertise
- Health insurance
- Medicare and Medicaid
- Flood insurance
- Homeowners insurance
- Renters insurance
- Auto and motorcycle insurance
Referenced by
- The Miami Herald
- Money.com
- MSN
- Nasdaq
- The Sacramento Bee
- Yahoo! Finance
Education
- BA, University of Washington
- Certificate in Copyediting, UC San Diego
Credentials
- Licensed Life & Disability Insurance Agent
- Licensed Property & Casualty Insurance Agent
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