Medicare tax is a federal employment tax that funds a portion of the Medicare insurance program. It is a two-part tax where you pay a portion as an automatic deduction from your paycheck, and your employer pays the other part. The tax is based on "Medicare taxable wages," which is a calculation that uses your gross pay and subtracts pretax health care deductions such as medical insurance, dental, vision, or health savings accounts. The Medicare tax is automatically deducted from your paycheck on a monthly basis once you become eligible for Medicare.
The Medicare tax rate is determined by the IRS and is subject to change. The current tax rate for employees is 1.45% of their wages, and the employer pays a matching 1.45% of their employees’ wages in Medicare Part A tax. Self-employed individuals must pay the entire 2.9% . There is no cap on the amount thats taxed, and all taxable employment earnings are subject to Medicare tax, including salary, overtime, paid time off, tips, and bonuses.
If you receive wages over $200,000 a year, your employer must withhold an additional 0.9% Medicare tax on the wages over $200,000. If you’re married filing jointly with earned income over $250,000, you’re subject to an additional tax.
In summary, Medicare tax is a required employment tax thats automatically deducted from your paycheck. The taxes fund hospital insurance for seniors and people with disabilities. The tax rate for employees is 1.45% of their wages, and the employer pays a matching 1.45% of their employees’ wages in Medicare Part A tax.