Medicare tax is a federal payroll tax that funds the Medicare Hospital Insurance (HI) program, which provides health insurance for individuals aged 65 and older, as well as for certain younger people with disabilities or specific medical conditions. This tax is imposed on earned income and is paid by both employees and employers, as well as by self-employed individuals.
Medicare Tax Rates
- Employees: Pay a Medicare tax of 1.45% on all covered earnings.
- Employers: Also contribute 1.45% on the employee’s covered earnings.
- Self-Employed Individuals: Pay a combined rate of 2.9%, covering both the employee and employer portions.
Authoritative Source:
- IRS Publication 15 (Circular E), Employer’s Tax Guide [^1]:
“The Medicare tax rate is 1.45% each for the employee and employer, unchanged from 2022.”
Additional Medicare Tax
An Additional Medicare Tax of 0.9% applies to high-income earners. This tax is only imposed on the employee portion; employers do not pay the additional tax.
Thresholds for Additional Medicare Tax:
- Single: Earnings over $200,000
- Married Filing Jointly: Earnings over $250,000
- Married Filing Separately: Earnings over $125,000
- Head of Household (with qualifying person): Earnings over $200,000
- Qualifying Widow(er) with Dependent Child: Earnings over $200,000
Authoritative Source:
- IRS Questions and Answers for the Additional Medicare Tax [^2]:
“An individual is liable for Additional Medicare Tax if the individual’s wages, compensation, or self-employment income… exceed the threshold amount for the individual’s filing status.”
Withholding and Reporting
- Employers: Required to withhold the Additional Medicare Tax from an employee’s wages exceeding $200,000 in a calendar year, regardless of the employee’s filing status or other income.
Authoritative Source:- IRS Publication 15 [^1]:
“An employer is required to withhold Additional Medicare Tax on wages it pays to an employee in excess of $200,000 in a calendar year.”
- IRS Publication 15 [^1]:
- Employees: Responsible for paying any Additional Medicare Tax owed if their combined wages exceed the applicable threshold for their filing status. If insufficient tax is withheld, employees may need to make estimated tax payments or adjust their W-4 withholding.
- Form 8959: Taxpayers use Form 8959, Additional Medicare Tax, to calculate and report this tax on their individual income tax returns.
Authoritative Source:- IRS Form 8959 Instructions [^3]:
“Use Form 8959 to figure the amount of Additional Medicare Tax you owe and report any Additional Medicare Tax withheld by your employer.”
- IRS Form 8959 Instructions [^3]:
Self-Employed Individuals
Self-employed individuals are subject to the same Medicare tax rates:
- Standard Medicare Tax: Pay 2.9% on net earnings from self-employment.
- Additional Medicare Tax: Pay an additional 0.9% on self-employment income exceeding the threshold for their filing status.
Authoritative Source:
- IRS Publication 334, Tax Guide for Small Business [^4]:
“You must pay self-employment tax if your net earnings from self-employment were $400 or more… The self-employment tax rate is 15.3%, consisting of 12.4% for Social Security and 2.9% for Medicare.”
Key Considerations
- No Wage Base Limit: Unlike Social Security tax, there is no wage base limit for Medicare tax; it applies to all covered wages and self-employment income.
Authoritative Source:- IRS Publication 15 [^1]:
“There is no wage base limit for Medicare tax.”
- IRS Publication 15 [^1]:
- Nonresident Aliens and Medicare Tax: Generally subject to Medicare tax on wages earned for services performed in the United States.
Authoritative Source:- IRS Publication 515, Withholding of Tax on Nonresident Aliens [^6]:
“Compensation for personal services performed in the United States by nonresident aliens is subject to Medicare taxes.”
- IRS Publication 515, Withholding of Tax on Nonresident Aliens [^6]:
- Exemptions: Certain religious groups and specific employment types may be exempt from Medicare tax.
Authoritative Source:- IRS Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers [^7]:
“Members of recognized religious groups opposed to insurance may qualify for exemption from Medicare taxes.”
- IRS Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers [^7]:
- Medicare Tax and Social Security Benefits: Paying Medicare tax does not impact your Social Security benefits directly, but it ensures eligibility for Medicare Part A upon reaching age 65.
Planning and Compliance
- Estimated Taxes: High-income earners who may be subject to the Additional Medicare Tax should plan accordingly, possibly adjusting withholding or making estimated tax payments.
Authoritative Source:- IRS Publication 505, Tax Withholding and Estimated Tax [^8]:
“You may need to make estimated tax payments if you expect to owe Additional Medicare Tax.”
- IRS Publication 505, Tax Withholding and Estimated Tax [^8]:
- Employer Responsibility: Employers are not required to notify employees when they begin withholding the Additional Medicare Tax.
Authoritative Source:- IRS Questions and Answers for the Additional Medicare Tax [^2]:
“There’s no requirement that an employer notify its employee.”
- IRS Questions and Answers for the Additional Medicare Tax [^2]:
Disclaimer: The information provided is for general informational purposes and should not be considered legal or tax advice. Tax laws are complex and subject to change. For advice specific to your situation, consult a qualified tax professional or refer to official IRS resources.