Understanding the Medicare Tax
As of 2024, the Medicare tax rate is 1.45% for both employers and employees, making the total Medicare tax rate 2.9%. For every dollar an employee earns, 1.45 cents is deducted from their paycheck for Medicare, and their employer matches this amount.
For high-income earners, an additional Medicare tax of 0.9% applies to wages, compensation, and self-employment income over certain thresholds:
Who Pays the Medicare Tax?
Both employees and employers pay the standard Medicare tax. Self-employed individuals pay both portions, totaling 2.9%, but can deduct the employer-equivalent portion of their self-employment tax when calculating their adjusted gross income.
Example Calculation
Let's consider an example to understand how the Medicare tax is calculated.
Example 1: Single Employee Earning Below the Additional Medicare Tax Threshold
Jane is a single employee earning $150,000 per year. Since her income is below the $200,000 threshold, only the standard Medicare tax applies.
Conclusion
The Medicare tax is essential for funding the United States' healthcare system. Understanding its calculation and who pays it helps individuals prepare for their financial obligations, ensuring compliance with tax regulations and supporting the Medicare program.
