Medicare wages and tips are almost every dollar an employer pays you for work, and they are taxed at a flat 1.45% out of your paycheck with your employer matching another 1.45%. There is no annual cap. Unlike Social Security wages, which stop being taxed once you hit $184,500 in 2026, Medicare tax keeps applying no matter how much you earn.1Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates Higher earners owe an additional 0.9% on wages above certain thresholds, and self-employed workers pay both halves themselves.
What Counts as Medicare Wages and Tips
If your employer pays you for work, the payment is almost certainly a Medicare wage. That covers salary or hourly pay, overtime, bonuses, commissions, vacation pay, and severance. Tips you report to your employer are included too.1Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates
Non-cash compensation gets pulled in as well. The most common example is employer-provided group-term life insurance: if your employer covers you for more than $50,000, the imputed cost of the excess coverage counts as Medicare wages.2Internal Revenue Service. Group-Term Life Insurance Other taxable fringe benefits, like personal use of a company car, are valued at fair market value and added to your Medicare wage total.
On your W-2, this total lives in Box 5. Box 5 will almost always be larger than Box 3, which caps out at the Social Security wage base of $184,500 for 2026. If you earned $199,750 during the year, Box 3 would show $184,500, but Box 5 would show the full $199,750.3Internal Revenue Service. General Instructions for Forms W-2 and W-3 Box 6 shows the Medicare tax that was withheld, including any Additional Medicare Tax.
Which Pre-Tax Deductions Reduce Medicare Wages
Not every “pre-tax” deduction on your pay stub actually lowers your Medicare wages. This is where W-2s surprise people.
Traditional 401(k) contributions do not reduce Medicare wages. When you defer part of your salary into a traditional 401(k), that money is sheltered from federal income tax, but you still owe 1.45% Medicare tax on it. Your elective deferrals show up in Box 5. Roth 401(k) deferrals get the same treatment.4Internal Revenue Service. Are Retirement Plan Contributions Subject to Withholding for FICA, Medicare, or Federal Income Tax Employer matching contributions, on the other hand, are not subject to Medicare tax.
Contributions through your employer’s Section 125 cafeteria plan work differently. Money going into a Health Savings Account, Flexible Spending Account, or dependent care assistance program through a cafeteria plan comes out of your pay before FICA taxes are calculated, so it genuinely reduces your Medicare wages.5Internal Revenue Service. FAQs for Government Entities Regarding Cafeteria Plans If you are trying to lower your total payroll tax bill, cafeteria plan benefits do it in a way that 401(k) contributions do not.
The Standard Medicare Tax Rate
The combined Medicare tax rate is 2.9%, split evenly between you and your employer. Your employer withholds 1.45% from each paycheck and contributes a matching 1.45% on top.1Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates The employer half never appears on your pay stub, but it is part of the total cost of employing you.
There is no bracket system. The rate is flat from your first dollar of Medicare wages, with no ceiling. A worker earning $40,000 pays the same 1.45% rate as one earning $400,000, up to the point where the Additional Medicare Tax kicks in.
The Additional Medicare Tax for Higher Earners
On top of the standard 2.9%, an extra 0.9% applies to Medicare wages above a threshold that depends on your filing status. The Additional Medicare Tax falls entirely on the worker. Your employer does not match it.6Internal Revenue Service. Topic No. 560, Additional Medicare Tax
- Single or Head of Household: $200,000
- Married Filing Jointly: $250,000
- Married Filing Separately: $125,000
Only wages above the threshold get the extra 0.9%. A married couple filing jointly with $280,000 in combined wages owes the additional tax on $30,000, not on the full $280,000.7Internal Revenue Service. Questions and Answers for the Additional Medicare Tax
Employer Withholding and Reconciliation
Your employer does not know your filing status, so a single rule applies: once your wages from that employer exceed $200,000 in a calendar year, they start withholding the extra 0.9%.7Internal Revenue Service. Questions and Answers for the Additional Medicare Tax That can create a mismatch with your actual liability. A joint filer whose combined household income stays under $250,000 may have been over-withheld. Someone filing separately with a $125,000 threshold was probably under-withheld. If you hold more than one job, no single employer sees your combined wages, so withholding may fall short of what you owe.
Either way, you reconcile on Form 8959, attached to your Form 1040. The form calculates your actual Additional Medicare Tax liability and compares it to what was withheld. Excess withholding applies to your total tax; a shortfall becomes an amount due.8Internal Revenue Service. Instructions for Form 8959, Additional Medicare Tax If you expect to owe more than your employer will withhold, you can increase your income tax withholding on Form W-4 or make estimated tax payments. You cannot ask your employer to specifically withhold more for the Additional Medicare Tax.
Not the Same as the Net Investment Income Tax
The Additional Medicare Tax uses the same thresholds as the 3.8% Net Investment Income Tax, so the two get confused. They are separate. The Additional Medicare Tax applies to wages and self-employment income. The Net Investment Income Tax applies to interest, dividends, capital gains, rental income, and royalties. You will never owe both on the same dollar.9Internal Revenue Service. Net Investment Income Tax
Medicare Tax When You Are Self-Employed
When you work for yourself, you play both roles and owe the full 2.9% Medicare tax. The total self-employment tax rate is 15.3%: 12.4% for Social Security and 2.9% for Medicare.10Internal Revenue Service. Self-Employment Tax (Social Security and Medicare Taxes)
You do not pay self-employment tax on 100% of your net profit. The taxable amount is 92.35% of your net self-employment earnings.11Internal Revenue Service. Topic No. 554, Self-Employment Tax The adjustment mirrors the fact that employees effectively only pay tax on wages after accounting for the employer’s share. On $100,000 of net self-employment income, you calculate the tax on $92,350.
Report business income on Schedule C and carry the net profit to Schedule SE, where the self-employment tax is calculated.12Internal Revenue Service. Instructions for Schedule C (Form 1040) You can deduct the employer-equivalent portion of the self-employment tax (half of the total) when figuring your adjusted gross income. That deduction lowers your income tax but does not reduce the self-employment tax itself.10Internal Revenue Service. Self-Employment Tax (Social Security and Medicare Taxes) If you are both an employee and self-employed, your W-2 wages and self-employment income combine for purposes of the Additional Medicare Tax thresholds.
Who Is Exempt From Medicare Tax
Most workers cannot opt out. A few narrow exemptions exist.
Foreign students and exchange visitors on F-1, J-1, or M-1 visas who have been present in the U.S. for fewer than five calendar years are generally exempt from Medicare tax on wages earned for purposes consistent with their visa. The exemption does not extend to spouses and dependents on F-2, J-2, or M-2 visas, and it ends once the visa holder becomes a resident alien.13Internal Revenue Service. Foreign Student Liability for Social Security and Medicare Taxes
Members of recognized religious groups that have existed continuously since December 31, 1950, and are conscientiously opposed to accepting insurance benefits can apply for an exemption using Form 4029. Approval means permanently waiving all Social Security and Medicare benefits.14Internal Revenue Service. Form 4029, Application for Exemption From Social Security and Medicare Taxes and Waiver of Benefits Ministers and Christian Science practitioners use Form 4361 under separate rules.
Students enrolled at least half-time who work for the same school, college, or university they attend are exempt from Medicare tax on those wages, as long as the employment is incidental to their studies.13Internal Revenue Service. Foreign Student Liability for Social Security and Medicare Taxes Working an off-campus job does not qualify, even if you are a full-time student.
IRS Publication 15 lists other narrow categories, including wages paid to a child under 21 employed by a parent, services for foreign governments and international organizations, and certain wages paid to a deceased worker’s estate after the calendar year of death.15Internal Revenue Service. Publication 15 (2026), Employer’s Tax Guide
One boundary worth flagging: household employers owe Medicare and Social Security taxes on a nanny, housekeeper, or other household worker only if they pay that worker $3,000 or more in cash during 2026. Below the threshold, neither side owes FICA on those wages. Once you cross $3,000, all the cash wages you paid that worker during the year become subject to Medicare tax, not just the amount above the threshold.16Internal Revenue Service. Publication 926 (2026), Household Employer’s Tax Guide