Medicare payroll tax is a fixed percentage of your wages that funds hospital insurance, medical insurance, and prescription drug coverage for people 65 and older

Medicare payroll tax appears on your pay stub as "Medicare tax" or "HI tax" (Hospital Insurance). Your employer withholds 1.45% of your gross wages, and your employer contributes an equal 1.45%, for a combined total of 2.9%. If you earn over a certain threshold — $200,000 for single filers, $250,000 for married couples filing jointly — you pay an additional 0.9% on income above that amount. This extra tax has no employer match.

The money collected funds three parts of Medicare: Part A (hospital stays and skilled nursing), Part B (doctor visits and outpatient care), and Part D (prescription drugs). Unlike Social Security tax, which goes into a trust fund you draw from later, Medicare tax pays current beneficiaries' claims. You become covered by Medicare at 65, regardless of how much you paid in during your working years.

Key Takeaways

  • Medicare tax is 1.45% of your wages, withheld by your employer, plus an equal 1.45% your employer pays.
  • If you earn over $200,000 (single) or $250,000 (married filing jointly), you pay an additional 0.9% on income above that threshold, with no employer match.
  • The tax funds hospital insurance, medical insurance, and prescription drug coverage for people 65 and older.
  • Medicare tax is separate from Social Security tax and is withheld from every paycheck for as long as you work, even after you turn 65.

How much Medicare tax you pay each year

Your Medicare tax is calculated on your gross wages before deductions. If you earn $50,000 per year, you pay $725 in Medicare tax (1.45% of $50,000), and your employer pays another $725. If you earn $250,000, you pay $3,625 in base Medicare tax plus $450 in additional Medicare tax on the $50,000 over the threshold, totaling $4,075 for the year.

Self-employed people pay both the employee and employer portions, totaling 2.9% of net self-employment income. You can deduct half of this amount on your tax return. If you have multiple jobs, each employer withholds 1.45% separately, but the additional 0.9% tax is calculated across all income combined on your annual tax return — you may owe more or receive a refund depending on your total earnings.

The income thresholds for additional Medicare tax

The additional 0.9% Medicare tax applies to wages above $200,000 for single filers, $250,000 for married couples filing jointly, and $125,000 for married couples filing separately. These thresholds do not adjust for inflation and have remained the same since 2013.

Your employer should withhold the additional tax once your wages exceed the threshold in a calendar year. However, if you have income from multiple jobs, each employer may not know about your other income, so you could end up owing more tax at tax time. Conversely, if you are married and both spouses work, each employer uses the single filer threshold ($200,000) unless you file a special form with them. This often results in overwithholding, which you recover as a refund.

Where Medicare tax money goes

Medicare tax funds the Hospital Insurance Trust Fund, which pays for Part A benefits: inpatient hospital stays, skilled nursing facility care, hospice, and home health services. Part B (doctor visits, lab work, imaging, outpatient surgery) and Part D (prescription drugs) are funded partly by general tax revenue and partly by beneficiary premiums, not directly by payroll tax.

The Hospital Insurance Trust Fund operates on a pay-as-you-go basis. Current workers' Medicare tax payments go directly to pay current beneficiaries' hospital bills. The fund has faced periodic solvency concerns because the number of beneficiaries is growing faster than the working-age population paying in. Trustees project the fund will have sufficient reserves through a certain year, after which incoming tax revenue alone would cover only a portion of costs — but Congress typically adjusts tax rates or benefits before that point.

Medicare tax if you work past 65

You continue paying Medicare tax on your wages even after you turn 65 and become covered by Medicare. There is no age at which the withholding stops. If you work part-time or full-time after 65, your employer withholds 1.45% (or 2.45% if you are over the income threshold) just as before.

Some people believe that once they are on Medicare, they no longer need to pay the tax. This is not the case. The tax continues for as long as you have earned income from wages or self-employment. The only exception is if you have no earned income — for example, if you live on retirement account withdrawals or investment income, neither of which is subject to Medicare tax.

How Medicare tax differs from Social Security tax

Social Security tax is 6.2% of your wages (employer matches 6.2%), and it applies only to the first $168,600 of earnings in 2024 — this cap adjusts annually. Medicare tax is 1.45% with no wage cap, plus the additional 0.9% above the income thresholds. Social Security tax funds retirement, disability, and survivor benefits; Medicare tax funds hospital and medical insurance for people 65 and older.

Social Security benefits are based on your 35 highest-earning years and the age you claim. Medicare coverage is not means-tested and does not depend on how much you paid in. You become covered at 65 if you are a U.S. citizen or permanent resident, regardless of your work history or tax contributions. Both taxes appear separately on your pay stub.

Self-employed Medicare tax and deductions

If you are self-employed, you pay Medicare tax on your net self-employment income (roughly your business income minus half your self-employment tax and certain business expenses). The rate is 2.9% for the base tax, plus 0.9% on income above the thresholds, for a maximum of 3.8%.

You can deduct half of your total self-employment tax (both Social Security and Medicare portions) on your income tax return. This deduction reduces your taxable income but does not reduce the amount of tax you owe to Medicare. You report self-employment income and tax on Schedule SE and Schedule C of your tax return. If you have both W-2 wages and self-employment income, the additional 0.9% Medicare tax is calculated on your combined income.

Frequently Asked Questions

Do I get a refund if I overpay Medicare tax?

If you have multiple jobs and each employer withholds the additional 0.9% Medicare tax separately, you may overpay. You claim the overpayment as a refund on your annual tax return. File Form 1040 and the IRS will calculate any refund owed. This commonly happens to married couples when both spouses work and each employer uses the single filer threshold.

Is Medicare tax the same in every state?

Medicare tax is federal and the same nationwide. Some states have additional state income taxes, but Medicare tax itself does not vary by state. Self-employed people in all states pay the same 2.9% base rate plus 0.9% above the income thresholds.

What happens if I don't pay Medicare tax?

Your employer is required by law to withhold Medicare tax from your paycheck. If you are self-employed and do not pay, the IRS can assess penalties and interest. Unpaid Medicare tax can affect your Social Security record and may result in a lower benefit calculation if the IRS credits the payment to your account later.

Can I opt out of Medicare tax?

No. Medicare tax is mandatory for all workers with earned income. There is no religious or personal exemption, unlike some other payroll taxes. The only way to avoid it is to have no earned income from wages or self-employment.