The Basics of the Medicare Tax

Two tiers of tax rates: 2.9% plus an additional 0.9% for higher-income people

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The United States government imposes a Medicare tax of 2.9% on wages received by an employee and on business or farming income earned by self-employed individuals. Medicare taxes were increased by an additional 0.9% to 3.8% for higher-income individuals in the year 2013

Medicare Hospital Insurance Tax

Medicare taxes are imposed at a flat tax rate of 2.9% on wages, salaries, and business or farming income earned by self-employed individuals.

There's no limit on the amount wages subject to Medicare taxes, unlike the annual wage limit for Social Security taxes.

The Medicare hospital insurance tax is paid half by employees through payroll deductions and half by the employer. Accordingly, employees pay a Medicare tax rate of 1.45% (half of the 2.9% rate).

Self-employed persons pay both halves of the Medicare tax since they are both the employee and the employer. However, self-employed persons are allowed to deduct half of the Medicare tax as an adjustment to income. Self-employed persons calculate and pay their Medicare tax when filing their personal tax return as part of the self-employment tax.

Additional Medicare Taxes for 2014 and 2015

An additional Medicare tax of 0.9% applies to Medicare wages and to net self-employment income over a threshold amount. The threshold amounts are:

Additional Medicare Tax Thresholds

Filing status

Wages and/or Self-Employed Income in Excess of

Married Filing Jointly


Single or Head of Household or Qualifying Widow(er)


Married Filing Separately


Payroll Withholding for the Additional Medicare Tax

Employers are required to withhold an additional 0.9% on employee's wages in excess of the threshold amounts. Also, employers might not always know if an employee is subject to this additional Medicare tax. The additional Medicare tax will be calculated on an individual's personal income tax return, and any shortfall not covered by withholding will need to be paid by the individual.

Employers, however, may be subject to penalties and interest for not withholding the additional Medicare tax.

The Unearned Income Medicare Contribution Tax for 2014 and 2015

An Medicare contribution tax of 3.8% applies to "unearned income." This tax is also called the net investment income tax. The 3.8% rate applies to the lower of net investment income or modified adjusted gross income over a threshold amount. The threshold amounts are:

Net Investment Income Tax Thresholds

Filing status

Modified Adjusted Gross Income

Married Filing Jointly or Qualifying Widow(er) 


Single or Head of Household


Married Filing Separately



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