what is medicare tax
What Is Medicare Tax?
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Meta Title: What Is Medicare Tax? Rates, Exemptions & Who Pays (2025)
Meta Description: Medicare tax is a 1.45% payroll tax on all wages, with an additional 0.9% for high earners. Self-employed pay 2.9% total. Full breakdown here.
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H1
What Is Medicare Tax?
ANSWER SECTION
Medicare tax is a federal payroll tax that funds the Medicare health insurance program for Americans 65 and older. In 2025, employees pay 1.45% of all wages with no wage cap, and employers match this 1.45%. Self-employed individuals pay the combined 2.9% on net self-employment income. High earners above $200,000 (single) or $250,000 (married) pay an additional 0.9% Medicare surtax.
H2: How Much Is Medicare Tax?
Employee Medicare tax: 1.45% of gross wages Employer Medicare tax: 1.45% of employee wages (matched) Total Medicare tax per dollar of wages: 2.9%
Unlike Social Security tax which has a wage cap ($176,100 in 2025), Medicare tax applies to all wages with no upper limit.
Example for employee earning $100,000:
- Employee pays: $100,000 × 1.45% = $1,450
- Employer pays: $100,000 × 1.45% = $1,450
- Total Medicare tax: $2,900
Example for employee earning $500,000:
- Employee pays: $500,000 × 1.45% = $7,250
- Plus additional Medicare tax (see below): $500,000 × 0.9% = $4,500
- Total employee Medicare tax: $11,750
H2: Additional Medicare Tax for High Earners
The Additional Medicare Tax of 0.9% applies to wages above:
- $200,000 for single filers
- $250,000 for married filing jointly
- $125,000 for married filing separately
Important: Employers must withhold the additional 0.9% once an employee's wages exceed $200,000 in a calendar year, regardless of filing status. This can cause over-withholding for married couples who file jointly.
If your employer withholds too much because of this $200,000 threshold, you can claim a credit on your tax return (Form 8959).
Example for single filer earning $300,000:
- Regular Medicare tax: $300,000 × 1.45% = $4,350
- Additional Medicare tax: ($300,000 - $200,000) × 0.9% = $900
- Total Medicare tax: $5,250
H2: Medicare Tax for Self-Employed
Self-employed individuals pay both halves of Medicare tax:
Self-employment Medicare tax: 2.9% of net self-employment income Additional Medicare tax: 0.9% on income above thresholds
However, you can deduct the employer portion (1.45%) as an adjustment to income on Form 1040 Schedule 1.
Example for self-employed with $150,000 net income:
- Medicare tax: $150,000 × 2.9% = $4,350
- Deductible portion: $150,000 × 1.45% = $2,175
- Effective after-deduction cost: $2,175
H2: Where Does Medicare Tax Go?
Medicare tax funds two trust funds:
Hospital Insurance (HI) Trust Fund:
- Pays for Medicare Part A (hospital insurance)
- Covers inpatient hospital care, skilled nursing, hospice
- Funded by the 2.9% total Medicare tax
Supplementary Medical Insurance (SMI) Trust Fund:
- Pays for Medicare Part B (medical insurance)
- Pays for Medicare Part D (prescription drugs)
- Funded by general tax revenue and beneficiary premiums
The Medicare tax you pay today funds current beneficiaries' care. Future beneficiaries will be funded by future workers' taxes.
H2: State-Specific Rules
California: Does NOT tax Social Security benefits, but all wage income including Medicare-taxed wages is subject to California state income tax. California workers pay both federal Medicare tax (1.45%) and California SDI tax (1.1%) — these are separate programs.
Florida: No state income tax at all. Florida residents pay only federal Medicare tax.
New York: Has a Paid Family Leave program (0.373% of wages) in addition to federal Medicare tax.
Texas: No state income tax. Only federal Medicare tax applies.
Most states follow federal Medicare taxation rules since Medicare is a federal program.
H2: Related Tax Questions
To understand how Medicare premiums may be deductible, see our guide on whether Medicare premiums are tax deductible with 2025 AGI threshold rules.
California workers should also review what is SDI tax to understand the 1.1% California State Disability Insurance that appears alongside Medicare on their paystubs.
Learn about the federal program that funds retirement benefits alongside Medicare in our guide on Social Security taxation and whether Social Security is taxable in California.
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