Medicare Tax

How It Works

Medicare tax funds the Medicare health insurance program for Americans age 65 and older. Unlike Social Security tax, Medicare tax has no wage base cap, every dollar of wages is subject to the 1.45% tax. Employers pay a matching 1.45%, for a total of 2.9%. Since 2013, the Additional Medicare Tax adds 0.9% on wages exceeding $200,000 for single filers ($250,000 for married filing jointly). This additional tax is employee-only, employers don't match it. The combined rate on high-income wages is therefore 2.35% for the employee and 3.8% total including the employer share. Self-employed individuals pay both halves (2.9%) plus the additional 0.9% above the threshold. The Additional Medicare Tax applies to the combined total of wages, compensation, and self-employment income. It cannot be reduced by filing status adjustments after the fact, employers begin withholding when individual wages exceed $200,000, regardless of filing status. This means a married couple each earning $150,000 won't have Additional Medicare Tax withheld at work, but they also won't owe it since their individual wages don't exceed the threshold. However, married filing separately filers have a lower $125,000 threshold, which can trigger unexpected Additional Medicare Tax liability. Investment income above the AGI threshold may trigger the separate but related Net Investment Income Tax of 3.8%.

Medicare Tax is one of the tax-code concepts that recurs across TaxCompare. The definition above is the technical answer; below is the practical context for how it shows up in the state-vs-state comparisons that drive the site.

In the tax-comparison engine, this concept feeds either the federal calculation (IRS Revenue Procedures) or the state calculation (Tax Foundation state-tax database). The methodology page describes which inputs flow into each piece of the model.