Medicare Tax
What Is Medicare Tax?
Medicare tax is a federal payroll tax used to fund the Medicare health insurance program for individuals age 65 and older and certain younger people with disabilities.
The tax is collected under the Federal Insurance Contributions Act (FICA).
Why It Matters
Medicare tax helps support healthcare coverage for millions of Americans through the Medicare program. Workers contribute to the system during their working years to help fund future healthcare benefits.
How Medicare Tax Works
Medicare tax is automatically deducted from employee wages.
Both employees and employers contribute a percentage of wages toward Medicare taxes.
Self-employed individuals pay the full Medicare tax themselves as part of the self-employment tax.
Higher-income earners may also pay an additional Medicare tax on earnings above certain thresholds.
Example
An employee earning wages from a job will see Medicare tax deducted from their paycheck as part of payroll taxes.
Medicare Tax vs Social Security Tax
- Medicare tax funds healthcare coverage under the Medicare program.
- Social Security tax funds retirement and disability benefits.
FAQs About Medicare Tax
Who pays Medicare tax?
Employees, employers, and self-employed individuals.
Is there an income limit for Medicare tax?
Unlike Social Security tax, Medicare tax generally applies to all earned income.
What does Medicare tax fund?
Healthcare benefits provided through the Medicare program.
Related Terms
