The Medicare tax supports your health coverage when you become eligible for Medicare. It applies to all earned income and deducts from your paycheck each month. This tax applies to all your earnings which includes:
- Tips
- Wages
- Self-employment earnings above a certain level
- Certain Railroad Retirement Tax Act (RRTA) benefits.
If you work in the United States, you must pay the Medicare tax on your earnings even if you are in the lowest income bracket.
Do you have to pay the Medicare tax?
Generally, if you are an employee or an employer, you must pay the Medicare tax if you work in the United States. It doesn’t matter your citizenship or residency status. If you earn income outside of the United States, you may have to pay the medicare tax so confirm with your employer if this applies to you. You can also get a refund if Medicare taxes are withheld from your paycheck by mistake. If this happens, contact your employer to ask for a refund.
In the Federal Insurance Contributions Act (FICA) in 2018/2019, the IRS determined the tax rate for earned income to be 7.65%. This consists of the Medicare tax at 1.45% and the Social Security tax at 6.2%. The IRS is subject to change these rates at any time. For those that are self-employed, your tax rate will be higher because you will pay both the employee and employer portion. To know your current self-employment tax rate, visit IRS.gov or contact Social Security at 1-800-772-1213 (TTY 1-800-325-0778). You can call Monday through Friday, from 7AM to 7PM in all U.S. time zones.
What is the Additional Medicare Tax?
In 2010, The Affordable Care Act added another Medicare payroll tax called the Additional Medicare Tax. Higher wage earners pay an additional tax (0.9%) on earned income with this new Medicare tax.
However, all types of wages may be subject to the Additional Medicare tax. Currently, if you surpass a certain level of income on all your cumulative wages, then you must pay the Additional Medicare Tax
How do you know if you have to pay the Additional Medicare Tax?
You pay the Additional Medicare Tax if your individual wages, compensation, and self-employment income (combined income if married and filing a joint return) exceed the following amounts:
| Filing Status | Threshold Amount |
|---|---|
| Single, head of Household, or qualifying widow(er) with dependent child | $200,000 |
| Married (filing jointly) | $250,000 |
| Married (filing separately) | $125,000 |
This is how the Additional Medicare Tax works
If you are not married, $200,000 is the maximum yearly income you can earn before you are subject to the Additional Medicare Tax. if your cumulative income surpasses that amount, you will pay the Additional Medicare Tax of 0.9%. However, all types of wages may be subject to the Additional Medicare tax. Currently, if you surpass a certain level of income on all your cumulative wages. Then you must pay the Additional Medicare Tax.