What Is the Medicare Tax?
The Medicare tax is a payroll tax that applies to all earned income and supports your health coverage when you become eligible for Medicare. The tax is automatically deducted from your paycheck each month and is a tax on your earnings, including wages, tips, certain Railroad Retirement Tax Act (RRTA) benefits, and self-employment earnings that fall above a certain level. There is no minimum income limit, and all individuals who work in the United States must pay the Medicare tax on their earnings.
Who pays the Medicare tax?
Generally, all employees who work in the U.S. must pay the Medicare tax, regardless of the citizenship or residency status of the employee or employer. In certain limited situations, you may have to pay the Medicare tax on income earned outside of the United States (your employer should be able to confirm if this applies to you). If Medicare taxes are withheld from your paycheck in error, you should contact your employer to ask for a refund.
The Medicare tax rate is determined by the IRS and is subject to change. The Federal Insurance Contributions Act, or FICA, tax rate for earned income is 7.65% in 2018, which consists of the Social Security tax (6.2%) and the Medicare tax (1.45%). The Medicare tax is one of the federal taxes withheld from your paycheck if you’re an employee or that you are responsible for paying yourself if you are self-employed.
If you are self-employed, you’ll pay a higher tax rate, since you’ll be responsible for paying both the employee portion and the share that is normally paid by your employer. Visit IRS.gov or contact Social Security for the current self-employment tax rate by calling 1-800-772-1213 (TTY 1-800-325-0778), Monday through Friday, from 7AM to 7PM in all U.S. time zones.
What is the Additional Medicare Tax?
The Affordable Care Act expanded the Medicare payroll tax to include the Additional Medicare Tax. This new Medicare tax increase requires higher wage earners to pay an additional tax (0.9% in 2018) on earned income.
All types of wages currently subject to the Medicare tax may also be subject to the Additional Medicare Tax. An individual owes Additional Medicare Tax on all cumulative wages, compensation, and self-employment income once the total amount exceeds the threshold for their filing status.
Who pays the Additional Medicare Tax?
Individuals are required to pay the Additional Medicare Tax if their individual wages, compensation, and self-employment income (combined income if married and filing a joint return) exceed the following maximum amounts:
|Filing Status||Maximum Amount|
|Married (filing jointly)||$250,000|
|Married (filing separately)||$125,000|
|Single, head of Household, or qualifying widow(er) with dependent child||$200,000|
Example of how the Additional Medicare Tax works
Single individuals can have a maximum income of $200,000 before they are subject to the Additional Medicare Tax. Should the cumulative income exceed that amount, they will then be required to pay the Additional Medicare Tax amount (0.9% in 2018).
All wages currently subject to the Medicare Tax are also subject to the Additional Medicare Tax. An individual owes Additional Medicare Tax on all cumulative wages, compensation, and self-employment income that exceeds the threshold for their filing status.