Medicare Tax on Your Paycheck Explained

Medicare tax is smaller than Social Security tax but it applies to every dollar you earn — there's no cap. For high earners, there's also an additional surtax. Here's how it all works.

The Basic Rate: 1.45%

You pay 1.45% of your gross wages as Medicare tax, and your employer matches it with another 1.45% — for a total of 2.9% going toward Medicare.

Unlike Social Security, there is no wage base limit. The 1.45% applies to every dollar you earn, whether you make $30,000 or $3,000,000.

The Additional Medicare Tax: 0.9%

The Affordable Care Act introduced an additional 0.9% Medicare tax on high earners. It applies above these thresholds:

Your employer is required to start withholding the extra 0.9% once your wages from that employer exceed $200,000 in a calendar year — regardless of your filing status. If you're married filing jointly and your combined income crosses $250,000, you'll reconcile any difference on your tax return.

What Medicare Tax Funds

Medicare taxes fund Medicare Part A — hospital insurance for people 65 and older, as well as some younger people with disabilities. This covers inpatient hospital stays, skilled nursing care, and hospice.

Parts B, C, and D of Medicare are funded through premiums and general federal revenue, not the payroll tax.

Net Investment Income Tax (NIIT)

For very high earners, there's also a 3.8% Net Investment Income Tax that applies to investment income (dividends, capital gains, rental income) above the same $200,000/$250,000 thresholds. This is separate from the Medicare payroll tax and appears only when you file your return.

Medicare Tax for the Self-Employed

Self-employed individuals pay 2.9% Medicare tax on net self-employment income (both employee and employer shares). On income above the threshold, the additional 0.9% also applies. Half of the 2.9% is deductible on Schedule 1.