Medicare Taxes

Employers must withhold Social Security and Medicare taxes--these are known as FICA (Federal Insurance Contributions Act) taxes. The FICA tax actually consists of two taxes: a 6.2 percent Social Security tax and a 1.45 percent Medicare tax.

Medicare Taxes

Like Social Security benefits, Medicare’s Hospital Insurance program is funded largely by employment taxes. Medicare HI taxes began in 1966, at a modest rate of 0.7%. Employers and employees were each responsible for paying 0.35%. Employees paid their share when their employers deducted it from their paychecks. Since 1966 the Medicare HI tax rate has risen, though it’s still below the Social Security tax rate, also known as OASDI, for Old-age, Survivors and Disability Insurance.

How much is withheld for Medicare taxes?

The Medicare Tax rate is 1.45% for individuals with Medicare taxable wages up to $200,000. Employees and employers each pay 1.45%, for a total of 2.9%. Unlike with Social Security taxes, there is no limit on the income subject to Medicare taxes.

Medicare Taxable Wages

You might have certain earnings that are excluded from your wages before Medicare tax deductions are calculated. For example, if you participate in your employer’s group health insurance program, you may choose to have your premiums deducted prior to the calculation. Your contributions to a dependent care assistance program typically are not considered taxable wages for Medicare tax, either.

Earnings Limit

There is no limit on the income subject to Medicare taxes.  However, the Affordable Care Act (ACA) added an extra Medicare tax on high earners. This tax is known as the Additional Medicare Tax. Since January 2013, anyone with earned income of more than $200,000 has paid an additional 0.9% in Medicare taxes beyond the standard 1.45%. That 0.9% is paid entirely by the employee, not split between the employer and the employee.

Where do my Medicare Tax Dollars Go?

Medicare is the federal health insurance program for people who are 65 or older, certain younger people with disabilities, and people with End-Stage Renal Disease (permanent kidney failure requiring dialysis or a transplant, sometimes called ESRD).

The different parts of Medicare help cover specific services:

• Medicare Part A (Hospital Insurance)
• Medicare Part B (Medical Insurance)
• Medicare Part C (Medicare Advantage Plans)
• Medicare Part D (prescription drug coverage)