The Medicare tax is a percentage of gross wages that all employees, employers and self-employed workers must pay to fund Medicare. In accordance with the Federal Insurance Contributions Act (FICA), employers are required to withhold the correct amount of Medicare tax and Social Security tax from every paycheck and forward it to the government on time. Failure to do so can result in significant penalties.

Additional Medicare tax

With the passage of the Affordable Care Act (ACA), the United States government mandated an additional Medicare tax. It applies to wages, railroad retirement (RRTA) compensation and self-employment income over certain thresholds. Employers are responsible for withholding additional Medicare tax on wages and there’s no employer match for it. Additional Medicare tax FAQs are available from the IRS.

How do self-employed individuals pay Medicare tax?

In addition to income tax, people who work for themselves must pay self-employment tax, or SE tax. It combines the Social Security and Medicare taxes withheld from the pay of most wage earners.

What wages are subject to Medicare tax?

All covered wages are subject to Medicare tax and there is no wage base limit. For more information, see Publication 15, (Circular E), Employer’s Tax Guide from the IRS.