Medicare tax is a federal payroll tax that funds the Medicare hospital insurance program, which helps cover healthcare for people 65 and older and certain younger people with disabilities. It is one of the two taxes that make up FICA. Employees pay 1.45% of their wages, and employers match it with another 1.45%.
Medicare tax is the portion of payroll taxes earmarked for Medicare Part A, the hospital insurance side of the program. It is collected on every dollar of covered wages with no upper limit, which sets it apart from Social Security tax. Medicare tax is paired with Social Security tax under FICA, and together they are withheld from each paycheck, lowering an employee’s net pay.
The mechanics are straightforward:
Because there is no cap, high earners keep paying Medicare tax on all their wages, unlike Social Security tax, which stops at the annual wage base limit.
Aaron earns $90,000 a year. His Medicare tax is 1.45% of that, or $1,305 for the year, and his employer pays a matching $1,305. Now consider Lena, who earns $250,000. She pays 1.45% on her full salary plus the Additional Medicare Tax of 0.9% on the $50,000 above the $200,000 threshold, which adds $450. Her employer still pays only the standard 1.45% match and does not cover the additional 0.9%. Both amounts are separate from any federal income tax withheld.
The Medicare tax rate is 1.45% for the employee and 1.45% for the employer, for a combined 2.9%. There is no wage cap on Medicare tax.
It is an extra 0.9% owed by employees on wages above $200,000 in a year. Employers withhold it once pay crosses that threshold, but do not match it.
No. Both are part of FICA, but Medicare funds hospital insurance with no wage cap, while Social Security has an annual wage base limit.
