Medicare Tax Rate

Medicare Tax Overview

Medicare is a health insurance program that is administered by the United States government, and which is primarily available to those 65 years old or older, as well as to those with certain disabilities. It is funded through the Medicare tax, though participants must also pay a portion of all health insurance costs incurred. The program has been in existence since 1965.

Medicare Tax Rates

Since 1986, the Medicare tax percentage that is paid by an employee has been 1.45% (plus matching of the same amount by the employer), and 2.9% for self-employed workers. This is different from the upper wage cap that limits the amount of social security tax that can be deducted from a person's wages.

Medicare Tax Limits

There is no cap on the Medicare tax for employed and self-employed people; thus, everyone must pay it, irrespective of the amount of money that they earn.

Medicare Tax Examples

ABC International employs Mr. Smith, who earns $5,000 of gross pay in the most recent pay period. ABC withholds $72.50 ($5,000 x .0145) from the pay of Mr. Smith, matches the $72.50 from its own funds, and forwards $145.00 to the government.

Mr. Jones is self-employed, and earns a total of $150,000 during the year. His total Medicare contribution during the year is $4,350 ($150,000 x .029).