Medicare tax is a federal employment tax that funds Medicare Part A, which provides hospital insurance coverage for people 65 and older and those with certain disabilities. This tax helps pay for hospitalizations, hospice care, skilled nursing facility care, and some home healthcare services.
The current Medicare tax rate is 2.9% of wages, split equally between employees and employers. Each pays 1.45% of the employee’s wages. Self-employed individuals pay the full 2.9% but only on 92.35% of their net business earnings, which partially offsets the employer portion they must cover.
High earners face an Additional Medicare Tax of 0.9% on income exceeding certain thresholds. This extra tax applies to wages above $200,000 for single filers and $250,000 for married couples filing jointly. Employers must withhold this additional tax once an employee’s wages exceed $200,000 in a calendar year, regardless of filing status.
All workers in the United States must pay Medicare taxes under the Federal Insurance Contributions Act (FICA). Employers automatically withhold these taxes from employee paychecks along with Social Security taxes.