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How much is Medicare Tax?

Medicare taxes fund Medicare coverage, a federal program that gives millions of retired and disabled individuals access to medical treatment. Although figuring out how much Medicare tax you owe can seem complex, it’s really quite simple.

Medicare Hospital Insurance Tax

Regardless of how much you earn, the government imposes a flat 2.9% Medicare tax on your wages. Half of this amount (1.45%) is paid by employees through payroll deductions and half is paid by their employers. In other words, half comes out of your pay and your employer matches that, paying another 1.45% on your behalf. If you have employees, you’re responsible for handling and paying this portion of Medicare tax.

Medicare Tax for the Self-Employed

If you’re a self-employed person, it’s up to you to pay both halves of the Medicare tax—so the entire 2.9%. However, on the plus side, you’re allowed to deduct half your self-employment tax on the first page of your tax return. Unlike other deductions, this one is beneficial in that it lowers your adjusted gross income (AGI). This is a good thing because various tax breaks depend on a lower AGI!

Additional Medicare Tax

In November 2013, the Affordable Care Act added an additional 0.9% Medicare surtax, but only for those with incomes over a certain threshold. Those affected pay a total Medicare tax of 3.8%. As of 2018, these income thresholds are:

  • $250,000 for married people filing jointly
  • $200,000 for single people, heads of households, or qualifying widow(er)s
  • $125,000 for married people filing separately

This means that employers must withhold the additional 0.9% from employees who make more than these threshold amounts. Thus, it is an employer’s responsibility to be aware of where each of their employees stands with regard to these wage thresholds.

The Net Investment Income Tax 

Investment income was not always subject to Medicare tax but the Affordable Care Act changed that as well. A Medicare contribution tax of 3.8% now also applies to “unearned income”—meaning interest or dividends from investments, as opposed to wages for labor. This is called the Net Investment Income Tax (NIIT).

Although it can seem a little overwhelming, many taxpayers only have to deal with that first 2.9% flat Medicare tax, unless they are high earners. Regardless of your situation, it’s best to stay informed on the ins and outs of Medicare tax to avoid any unexpected fees down the line!

Contact the experts at at 1-844-236-0228 for more information on how Medicare tax will affect you.