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.

What is additional Medicare tax?

With the passage of the Affordable Care Act (ACA), the United States government mandated an additional Medicare tax for high-income earners. Additional Medicare Tax is a surtax applied to wages, railroad retirement (RRTA) compensation, and self-employment income.

Once an employee earns more than the threshold, employers are responsible for withholding additional Medicare tax on those wages. Employers do not have a responsibility to contribute to the additional Medicare tax rate though there are other taxes employers do pay.

For more information, please visit the IRS website for Additional Medicare Tax FAQs.

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 are taxable wages?

Taxable wages are salaries paid to an employee that by law, must have taxes withheld. Alternatively, there are non-taxable wages that are not subject to tax withholding.

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.