The Medicare tax is a federal payroll tax that funds hospital coverage for people 65 and older and certain younger people with disabilities. The rate is 2.9% of your wages or self-employment income, split evenly between you and your employer at 1.45% each, with no income ceiling. High earners pay an extra 0.9% above certain thresholds. Almost everyone who works in the United States owes it. A few narrow exemptions cover some students, certain visa holders, and members of qualifying religious groups.
The Standard 2.9% Rate and How It’s Split
If you’re a W-2 employee, your employer withholds 1.45% from every paycheck and pays a matching 1.45% on top of that, sending the combined 2.9% to the IRS.1Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates You never see the employer half on your pay stub, but it’s a real cost of employing you.
Unlike Social Security tax, which stops at an annual wage cap ($184,500 in 2026), Medicare tax has no ceiling.2Internal Revenue Service. Instructions for Form 941 Every dollar of wages, bonuses, commissions, and tips you report to your employer is subject to the 2.9% tax, no matter how much you earn in a year. That matters most for high earners, who watch Social Security withholding stop partway through the year while Medicare withholding keeps coming out of every remaining check.
Some fringe benefits count as wages for Medicare purposes. If your employer provides more than $50,000 of group term life insurance, the imputed cost of the excess is subject to Medicare tax.3Internal Revenue Service. Group-Term Life Insurance On the other side, money you route through a Section 125 cafeteria plan, like premiums for employer-sponsored health insurance or contributions to a health flexible spending account, is generally excluded from Medicare wages. That pre-tax treatment lowers both your share and your employer’s share. For 2026, the health FSA salary reduction limit is $3,400.
The Extra 0.9% for High Earners
If your earned income crosses a threshold set by your filing status, you owe an Additional Medicare Tax of 0.9% on the amount above the threshold. That brings your total employee-side rate to 2.35% on the excess.4Internal Revenue Service. Topic No. 560, Additional Medicare Tax The thresholds are:
- Single, head of household, or qualifying surviving spouse: $200,000
- Married filing jointly: $250,000
- Married filing separately: $125,000
Your employer does not match this one. The full 0.9% comes out of your pocket, a departure from the 50/50 split that applies to the standard rate.5Internal Revenue Service. Questions and Answers for the Additional Medicare Tax
Withholding creates a timing mismatch worth understanding. Your employer must start withholding the extra 0.9% as soon as your year-to-date wages pass $200,000, regardless of how you file.4Internal Revenue Service. Topic No. 560, Additional Medicare Tax That single $200,000 trigger applies to everyone because your employer doesn’t know your filing status or your spouse’s income. You can easily end up over- or under-withheld by year-end.
Take a married couple filing jointly with combined wages of $240,000. They owe no Additional Medicare Tax at all, since they’re under the $250,000 joint threshold. But if one spouse earned $210,000, that spouse’s employer already withheld 0.9% on the last $10,000. Reverse the situation: two spouses earning $180,000 each. Neither employer withholds any extra, yet their combined $360,000 exceeds the joint threshold by $110,000, and they owe 0.9% on that $110,000 at filing.
You reconcile everything on Form 8959, attached to your annual return. It calculates the actual liability based on your filing status and compares it against what was withheld, producing either a credit or a balance due.6Internal Revenue Service. Instructions for Form 8959 The Additional Medicare Tax applies to wages, self-employment income, and Railroad Retirement compensation.
Medicare Tax When You Work for Yourself
If you’re a sole proprietor, an independent contractor, or a partner, no employer picks up half the bill. You owe the full 2.9% on your net self-employment earnings as part of self-employment tax, which also includes the 12.4% Social Security piece (up to the wage cap) for a combined rate of 15.3%.7Internal Revenue Service. Topic No. 554, Self-Employment Tax
The tax isn’t applied to your full net profit. First you multiply net self-employment earnings by 92.35%, then apply the 2.9% rate to that reduced amount.8Internal Revenue Service. Schedule SE (Form 1040) – Self-Employment Tax The 92.35% multiplier puts self-employed workers on roughly equal footing with employees, who don’t pay FICA on the portion of wages their employer contributes. You compute the whole thing on Schedule SE and carry it to Form 1040. If you run several businesses or side gigs, you combine their profits and losses into one net figure on Schedule SE, so a loss in one activity offsets income from another before the tax is calculated.
If your self-employment earnings plus any W-2 wages exceed the Additional Medicare Tax thresholds, you owe the extra 0.9% on the amount above the threshold too.4Internal Revenue Service. Topic No. 560, Additional Medicare Tax Someone with both a W-2 job and a business combines both sources to test whether they’ve crossed the line.
There’s a partial offset. You can deduct half of your regular self-employment tax (the combined Social Security and Medicare portions) as an above-the-line adjustment, which reduces your adjusted gross income.7Internal Revenue Service. Topic No. 554, Self-Employment Tax Read the fine print: the deduction covers half of the standard 15.3% self-employment tax and does not include the 0.9% Additional Medicare Tax. That extra 0.9% is not deductible at all, which catches many self-employed high earners off guard.
Who Is Exempt From Medicare Tax
Almost everyone who earns wages or self-employment income in the U.S. owes Medicare tax. The exceptions are narrow.
Students Working for Their School
If you’re enrolled at least half-time at a college or university and work on campus for that same school, your wages are generally exempt from both Social Security and Medicare taxes. The work has to be incidental to your studies, not a career-track job that happens to sit at the school.9Internal Revenue Service. Student FICA Exception A graduate teaching assistant or a student in the campus bookstore typically qualifies. A full-time administrator who also takes one class does not.
Nonresident Aliens on Certain Visas
Foreign students and exchange visitors in the U.S. on F-1, J-1, or M-1 visas are generally exempt from Medicare tax for their first five calendar years, as long as they remain nonresident aliens for tax purposes. The work has to be authorized by U.S. immigration and connected to the purpose of the visa, such as on-campus employment or authorized practical training.10Internal Revenue Service. Foreign Student Liability for Social Security and Medicare Taxes Once the visa holder becomes a resident alien under the substantial presence test, the exemption ends.
Members of Qualifying Religious Groups
Members of recognized religious sects that are conscientiously opposed to accepting insurance benefits (including Social Security and Medicare) can apply for an exemption using Form 4029.11Internal Revenue Service. About Form 4029, Application for Exemption From Social Security and Medicare Taxes The group must have been in existence since at least 1950 and must provide for its dependent members. Approval means you pay no Medicare tax, and you also forfeit all Social Security and Medicare benefit eligibility.
Investment Income Isn’t Subject to Medicare Tax
You’ll sometimes hear that dividends, capital gains, or rental income are “subject to Medicare tax.” That’s not accurate. What people mean is the Net Investment Income Tax, a separate 3.8% surtax on investment income enacted alongside the Additional Medicare Tax as part of the Affordable Care Act.12Internal Revenue Service. Topic No. 559, Net Investment Income Tax The thresholds match the Additional Medicare Tax: $200,000 single, $250,000 joint, $125,000 married filing separately. The NIIT applies to the lesser of your net investment income or the amount by which your modified adjusted gross income exceeds the threshold, and it covers interest, dividends, capital gains, rents, royalties, and passive business income. It does not apply to wages or self-employment income, and it is not technically a Medicare tax, though its revenue and thresholds are closely tied to the ACA’s surtax structure.