Learn About Medicare Tax Requirements

Understanding Medicare Tax Basics

Medicare tax is a payroll tax that funds the Medicare health insurance program for people age 65 and older, some younger people with disabilities, and people with end-stage renal disease. As of 2024, the Medicare tax rate is 2.9% of wages, split equally between employees and employers—each pays 1.45%. Self-employed individuals pay the full 2.9% on their net earnings. This tax has existed since Medicare's creation in 1965 and continues to be a fundamental part of how the program is funded.

Learn About the 1098-T Tax Form →

Unlike Social Security tax, which only applies to earnings up to a certain cap (which adjusts yearly and was $168,600 in 2024), Medicare tax applies to all wages with no upper limit. This means higher earners pay Medicare tax on every dollar they make. Additionally, since 2013, there has been an additional Medicare tax of 0.9% for wages exceeding certain thresholds. For 2024, these thresholds were $200,000 for single filers, $250,000 for married couples filing jointly, and $125,000 for married people filing separately.

The Medicare tax system operates through payroll withholding. When you receive a paycheck, your employer automatically deducts your portion of Medicare tax. Your employer then contributes their matching portion and sends both amounts to the Internal Revenue Service (IRS). Self-employed individuals must calculate and pay Medicare tax themselves when filing their tax return, typically using Schedule SE (Self-Employment Tax).

Practical takeaway: Review your recent pay stub to see Medicare tax listed as a line item. The amount should be 1.45% of your gross wages if you are an employee. If you are self-employed, track your net earnings to calculate the 2.9% Medicare tax obligation when tax season arrives.

Who Must Pay Medicare Tax

Nearly all U.S. workers must pay Medicare tax, with very few exceptions. Employees who earn wages are required to contribute 1.45% through payroll withholding. This includes full-time workers, part-time workers, temporary workers, and gig economy workers who receive W-2 forms from employers. The requirement applies regardless of age, immigration status (as long as you have a Social Security number), or whether you currently receive Medicare benefits.

Learn About the Arro Credit Card →

Self-employed individuals—including sole proprietors, partners, and independent contractors—must pay the full 2.9% Medicare tax on net earnings above $400. This applies whether the person is self-employed full-time or part-time. For example, a freelance writer who earns $35,000 in a year would owe $1,015 in Medicare tax on that income (after adjusting for the deductible portion of self-employment tax). A person who drives for a rideshare service as a second job must also pay Medicare tax on those earnings if they exceed the threshold.

There are very limited exceptions to Medicare tax. Certain religious groups that are opposed to accepting public insurance and have received IRS approval may be exempt. Some nonresident aliens are exempt if they are in the United States temporarily for specific visa categories and their income is not connected to U.S. sources. Students employed by their school may have temporary exemptions in specific situations. State and local government employees hired before March 31, 1986, may be exempt if their employers did not participate in Social Security. Additionally, some federal employees hired before 1984 may be exempt, though most federal employees hired after that date must pay Medicare tax.

Practical takeaway: Check your most recent pay stub or tax documents to confirm you are paying Medicare tax. If you believe you fall into an exception category, contact the IRS at 1-800-829-1040 or consult IRS Publication 15-B for more specific information about your situation.

The Additional Medicare Tax and High Earners

The Additional Medicare Tax was enacted as part of the Affordable Care Act in 2010 and took effect in 2013. This tax adds an extra 0.9% Medicare tax on wages exceeding certain income thresholds that are based on filing status. The employer does not contribute to this additional tax—it comes entirely from the employee. For 2024, the thresholds were $200,000 for single filers, $250,000 for married couples filing jointly, $125,000 for married individuals filing separately, and $200,000 for heads of household.

Understanding Milestone Credit Card Options and Features →

The Additional Medicare Tax applies to combined wages from all employers. For example, if a person is married and receives $150,000 in wages from one employer and $120,000 from a second employer, totaling $270,000, that person would owe Additional Medicare Tax on $20,000 of income ($270,000 minus the $250,000 threshold). At 0.9%, this equals $180 in Additional Medicare Tax for the year.

Employers must withhold Additional Medicare Tax from paychecks once an employee's year-to-date wages exceed the threshold. However, the thresholds are often based on a single paycheck and not on combined wages from multiple employers. This means some people may have overpaid Additional Medicare Tax during the year if they had multiple jobs or if a spouse earned income. When this happens, the excess can be claimed as a credit on the person's tax return. For instance, if someone changed jobs mid-year or worked multiple part-time positions, their payroll withholding might have over-deducted the Additional Medicare Tax. The Form 1040 tax return allows taxpayers to reduce their tax liability by the excess amount they paid.

Practical takeaway: If you earn over the Additional Medicare Tax threshold, review your pay stubs to see if the 0.9% additional tax is being withheld. If you have multiple jobs or if you are married with a spouse who also works, track your combined income to understand how Additional Medicare Tax applies to your situation. When filing taxes, verify the withholding amount on Form W-2 against what you actually owe based on your total household income.

Self-Employment Tax and Medicare Contributions

Self-employed individuals pay Medicare tax as part of self-employment tax. Self-employment tax covers both the employee and employer portions of Medicare tax (2.9%) and Social Security tax (12.4% for 2024). The total self-employment tax rate is 15.3%, but the calculation method provides a deduction that reduces the amount subject to tax. Specifically, self-employed individuals can deduct half of their self-employment tax when calculating their adjusted gross income, which provides some tax relief.

Pay Your Old Navy Credit Card Payment Guide →

To calculate self-employment tax, use Schedule SE (Form 1040). The process starts with net earnings from self-employment, which is calculated on Schedule C (for sole proprietors) or Schedule F (for farmers). Net earnings are calculated by taking gross income and subtracting allowable business expenses such as supplies, equipment, rent, utilities, and professional services. For example, a freelance graphic designer with $60,000 in revenue and $15,000 in business expenses would have net earnings of $45,000. On this amount, they would calculate 92.35% of net earnings ($45,000 × 0.9235 = $41,557.50), then multiply by the 15.3% self-employment tax rate to determine total self-employment tax owed.

Self-employed individuals who have high earnings may also be subject to the Additional Medicare Tax of 0.9%. This applies when combined income (including wages from other employment and self-employment income) exceeds the thresholds. A person who is self-employed and also has W-2 wages from part-time employment must combine both income sources to determine if the Additional Medicare Tax applies. Schedule SE and the tax return work together to ensure the correct amount of Medicare tax is calculated.

Practical takeaway: If you are self-employed, set aside 15.3% of your net profits for self-employment tax, or pay estimated quarterly taxes to avoid a large bill at tax time. Keep detailed records of all business income and expenses, as these determine your net earnings and the Medicare tax you owe. Consult IRS Publication 587 (Business Use of Your Home) or Publication 334 (Tax Guide for Small Business) for guidance specific to your situation.

Employer Responsibilities for Medicare Tax Withholding

Employers are legally required to withhold Medicare tax from employee paychecks and contribute a matching amount on behalf of each employee. This withholding is mandatory and must occur on all wages paid. Employers report the total Medicare tax withheld

Get Your Free Tax Filing Extensions Guide →