Medicare Tax is used to fund the United States Medicare program. This program provides subsided healthcare and hospital insurance benefits to retirees and disabled individuals. Anyone who works in the United States must pay Medicare tax on his or her earnings. This is a payroll tax, similar to social security and is imposed by the Federal Insurance Contributions Act (FICA).
All individuals who work in the United States must pay Medicare Tax on his or her earnings. Similar to social security, this is a payroll tax that is taken from an employee’s earnings. Currently there is no limit on the amount of earnings subject to Medicare Tax.
This tax rate, set by the IRS, can vary based on your income and filing status. For 2018, the Federal Insurance Contributions Act (FICA) tax rate for employers is 7.65% (6.2% for Social Security tax and 1.45% for Medicare Tax). Both the employee and employer contribute equally to the total Medicare Tax due for an individual. Those who are self employed will have a higher tax rate, as they are responsible to pay for both the employee and employer portion of the tax.
What is the Additional Medicare Tax?
Some individuals may need to pay an Additional Medicare Tax if their income exceeds certain limits. The Additional Medicare Tax rate is 0.9 percent and only applies to the amount of income that is more than the threshold amount. The threshold amount is based on an individuals filing status. If a taxpayer is married and files a joint return, they must combine all wages to determine if they will need to pay the Additional Medicare Tax.
For Individuals who are paid more than $200,000 in a calendar year, the Employer is required to withhold the Additional Medicare Tax from earned wages. Individuals who are self-employed should include this tax when they calculate their estimated tax liability.
Who Pays the Additional Medicare Tax?
Taxpayers are required to pay the Additional Medicare Tax if their combined total of all wages and compensation exceeds the following threshold amounts:
|Filing Status||Threshold Amount|
|Married – filing separately||$125,000|
|Married – filing jointly||$250,000|
|Single, Head of Household, or Qualifying Widower with dependent child||$200,000|
An Example of What Medicare Tax Looks Like for 2018
In 2018, employees will pay the following:
- 2% Social Security tax for the first $128,700 of wages
- 45% Medicare tax for the first $200,000 of wages (when filing Single, Head of Household, or Qualifying Widower with Dependent child)
- 35% Medicare tax (regular 1.45% Medicare tax + 0.9% additional Medicare tax) on all wages in excess of $200,000 (when filing Single, Head of Household, or Qualifying Widower with Dependent child)