What is Medicare Tax?
The Medicare tax is a mandatory payroll deduction that helps fund the Medicare program. A federal program that provides health insurance coverage to people who are 65 years and older, as well as those with disabilities.
This tax is part of the Federal Insurance Contributions Act (FICA), which also includes Social Security tax. The revenue collected here directly funds Medicare Part A, which covers hospital-related care, including skilled nursing, hospice, and home healthcare services.
Keep in mind that paying Medicare tax doesn’t automatically qualify an individual for Medicare benefits. Instead, it ensures that the program remains financially stable so that those eligible can access essential healthcare when they need it.
Who Pays Medicare Tax?
Most workers in the U.S. pay Medicare tax, including:
- Full-time employee and employer (including non-citizens working in the U.S.)
- Self-employed
- High-income earners (pays an additional surtax)
How Does Medicare Tax Work?
For an employee, the Medicare tax is automatically deducted from their gross income which includes wages, salary, bonuses, and tips. The employer, on the other hand, will handle the withholding and send both their share and the employees to the IRS.
Self-employed individuals, since they’re both the employee and employer, pay the full amount as part of their self-employment tax.
For example, a full-time employee earning $60,000 annually would have 1.45% deducted from their paycheck, which is roughly $72.50 per month. Their employer would also contribute $72.50, totaling $145 going towards Medicare. However, for self-employed individuals they would need to pay the full 2.9%.
Medicare Tax Rates For 2025
The applicable Medicare tax rates are:
- Employees & Employers: Both parties will contribute 1.45%, totaling 2.9%.
- Self-Employed Individuals: They are responsible for the full 2.9% rate.
- High-Income Earners: Earnings that exceed $200,000 (individual filers) or $250,000 (married couples filing jointly) will pay an additional 0.9% Medicare surtax.