Medicare Tax: What Employers Withhold
Medicare tax is 1.45 percent with no ceiling, plus 0.9 percent above $200,000. Why your withholding rule and the employee's liability do not match.
Medicare Tax
The payroll tax with no ceiling, the surtax you withhold but never match, and the threshold that is not the same one your employee is actually judged against
Medicare tax is 1.45 percent, you match it, and there is an extra 0.9 percent above $200,000. That is the whole thing, it takes one sentence, and every article on the subject will tell you exactly that.
What almost none of them tell you is the part that will actually confuse you when it happens.
The threshold you withhold at is not the threshold your employee is judged against. You withhold at $200,000, flat, regardless of anything. Their actual liability depends on their filing status, and it might be $250,000, or $125,000. Which means a perfectly compliant employer, doing everything exactly right, routinely produces a paycheck where the wrong amount of tax was withheld, and the employee discovers it in April.
That is not a bug and it is not your error. It is designed in. But when the employee comes to you convinced that payroll got it wrong, you need to know why they are both upset and mistaken. So this guide is Medicare tax from the employer side: the rate, the one structural fact that makes it unlike every other payroll tax, and then the Additional Medicare Tax, which is the only part of FICA you withhold without matching and the only one where being right still produces a discrepancy. I build FirstHR, which does not run your payroll and does not withhold anything. Your payroll system does. What it will not do is tell you why the number is what it is. General information, not tax advice.
What Medicare Tax Is
Medicare tax is the federal payroll tax that funds Medicare. It is one half of FICA; Social Security is the other.
Everything after this point is a consequence of two clauses in that definition. No wage base limit. Employer withholds it but does not match it. Those two facts generate every complication in the subject.
The Rate
Simple, and worth stating precisely because the numbers get garbled constantly.
Per IRS Topic 751, the current Medicare rate is 1.45 percent for the employer and 1.45 percent for the employee, or 2.9 percent total. A high earner therefore has 2.35 percent withheld, being 1.45 plus 0.9, while you continue paying only 1.45. The full arithmetic of how this sits alongside Social Security is in the FICA tax guide.
There Is No Ceiling
This is the structural fact, and it is what makes Medicare unlike every other payroll tax you pay.
Social Security stops. It has an annual wage base, and once an employee's cumulative wages cross it, you stop withholding Social Security for the rest of the year. Medicare does not stop. There is no cap, there has never been a cap, and it applies to every dollar an employee earns at any income level whatsoever.
The last row of that table is the one worth sitting with. At a high enough salary, Medicare tax exceeds Social Security tax, despite Social Security having a rate more than four times higher. The ceiling does that. And you are matching every dollar of the Medicare column, forever, with no relief at any income level.
There is a visible consequence you will encounter. A well-paid employee crosses the Social Security wage base sometime in the autumn, the Social Security line vanishes from their pay stub, and their net pay jumps. Medicare keeps right on going. They will notice the jump and often conclude payroll made an error in their favor. Nothing is wrong, and the mechanics of that moment are in net pay.
Who Pays It
Both of you, in equal halves, for the base tax. And the employee only ever sees one of those halves.
| Employee pays | Employer pays | Visible on the pay stub? | |
|---|---|---|---|
| Medicare, base rate | 1.45 percent, withheld | 1.45 percent, from your funds | Only the employee half. Yours appears nowhere |
| Additional Medicare, above $200,000 | 0.9 percent, withheld | Nothing. There is no match | Yes, but combined into the same line, not shown separately |
| Total for a high earner | 2.35 percent | 1.45 percent | They see 2.35. They do not see your 1.45 |
| Self-employed | 2.9 percent, both halves | Not applicable | There is no pay stub. It goes through self-employment tax |
Note the third row, because it produces a small conversation you will eventually have. A high earner looking at their pay stub sees 2.35 percent coming out and reasonably concludes that is what Medicare costs. It is not. You are paying 1.45 percent on top of that, which is not itemized anywhere they can see, and which does not appear on their pay stub. The full cost of employing them is higher than any document they hold.
And none of this applies to contractors. Medicare tax is an employee tax, a contractor pays both halves themselves, and you withhold nothing. Which is another reason misclassification is expensive rather than merely untidy: overturn the classification and you owe the Medicare tax you never withheld plus your matching share for the whole period, as set out in employee versus contractor.
The Additional Medicare Tax
The 0.9 percent surtax, introduced under the Affordable Care Act, in effect since 2013. Your obligation regarding it is mechanical and it is worth being precise about.
Per IRS Topic 560, an employer must begin withholding Additional Medicare Tax in the pay period in which the wages it pays an employee for the year exceed $200,000, without regard to filing status, and continues withholding it each pay period until the end of the calendar year. There is no employer match.
Read that sentence carefully, because there are three separate instructions packed into it and each one is a place employers go wrong.
The Threshold Mismatch
Now the part that makes this article worth reading, and that almost no employer-facing guide explains properly.
You withhold at $200,000. Your employee's actual liability is calculated against a threshold that depends on their filing status: $200,000 for single and head of household, $250,000 for married filing jointly, and $125,000 for married filing separately.
Those are two different rules. They were made different on purpose. And the result is that a perfectly compliant employer routinely withholds the wrong amount.
Work through the second row again, because it is the one that generates an angry email. Two spouses, $150,000 each. Neither employer withheld a cent of Additional Medicare Tax, and both employers were correct to withhold nothing, because neither employee's wages exceeded $200,000. But the couple's combined income of $300,000 exceeds the $250,000 joint threshold, so they owe 0.9 percent on the $50,000 above it, which is $450 they were not expecting.
Somebody in that story is going to ask their employer why payroll did not take this out. The answer is that payroll did exactly what it was legally required to do, and that you cannot possibly withhold correctly for a household whose other income you have no knowledge of and no right to ask about.
The employee settles it on Form 8959 when they file. Per the IRS instructions for Form 8959, that form exists precisely to reconcile what was withheld against what is actually owed, and a difference in either direction is expected rather than exceptional.
You Do Not Match the 0.9 Percent
Short section, expensive mistake.
The logic behind it, if it helps you remember: the base Medicare tax is a shared contribution and the surtax is a tax on the individual's high income. It is aimed at the earner, not at the employment relationship. You are the collection mechanism rather than a participant. What you withheld still gets reported on the quarterly return and in Box 6 of the W-2, alongside the ordinary Medicare tax rather than separately from it, and the full set of what you file is in payroll forms.
When to Start Withholding
The practical mechanics, because the timing is more specific than most employers realize.
If You Get It Wrong
The consequences are asymmetric depending on which direction the error went, and one of them is worse than employers expect.
Per the IRS questions and answers on the Additional Medicare Tax, an employer that fails to withhold it is liable for the tax unless the employee subsequently pays it. And that word unless is doing an enormous amount of work, because it means your exposure is contingent on somebody else's tax return, which you have no visibility into and no control over.
And even where the employee does pay it and you are relieved of the tax, you may still face penalties for having failed to withhold, deposit, and report. Those are separate obligations. Being bailed out on the money does not mean you complied.
The Threshold Never Moves
One more structural fact, and it is the reason this article will become more relevant to you over time rather than less.
The $200,000 threshold has been $200,000 since the tax took effect in 2013. It is not indexed for inflation. Neither are the filing-status thresholds of $250,000 and $125,000. They have never moved and there is no mechanism by which they automatically will.
This Is Not the Other Medicare Surtax
A terminology trap worth defusing, because the phrase Medicare surtax is used for two completely different taxes and only one of them is yours.
| Additional Medicare Tax | Net Investment Income Tax | |
|---|---|---|
| Rate | 0.9 percent | 3.8 percent |
| Applies to | Wages and self-employment income. Earned income | Investment income. Interest, dividends, capital gains |
| Who calculates it | You withhold it. The employee reconciles on Form 8959 | The taxpayer, on their own return. You are not involved |
| Your obligation | Withhold it, report it, deposit it | None whatsoever. It has nothing to do with payroll |
| Is it a payroll tax? | Yes | No |
Both are sometimes called a Medicare surtax and both came from the Affordable Care Act, which is where the confusion comes from. But the Net Investment Income Tax is not a payroll tax, does not touch wages, and creates no obligation for you at all. If an employee or an accountant mentions a Medicare surtax, establish which one they mean before you do anything, because for one of them your correct action is to withhold and for the other it is to do nothing.
Explaining It to the Employee
You will have this conversation, and it will be with your best-paid person, and they will be annoyed.
Common Mistakes
The thread through most of them is the same misunderstanding, and it is a reasonable one: employers expect Medicare tax to behave like Social Security, because they sit on the same line of the same law and get discussed in the same breath.
It does not behave like Social Security. Social Security has a ceiling and Medicare has none. Social Security is matched all the way up and Medicare is matched only on the base. Social Security withholding is calculated the same way the liability is, and Medicare withholding is deliberately calculated against a different threshold than the liability. Two taxes, one acronym, opposite designs at every point that matters. The combined mechanics are in the FICA tax guide, and where each deduction sits in the wider sequence is in payroll deductions.
Frequently Asked Questions
What is Medicare tax?
Medicare tax is a federal payroll tax that funds Medicare, specifically the hospital insurance portion. It is one half of FICA, the other half being Social Security. The employee pays 1.45 percent of their wages, you withhold it, and you pay a matching 1.45 percent out of your own funds, for a combined 2.9 percent. What makes it different from every other payroll tax is that it has no wage ceiling: unlike Social Security, which stops at an annual wage base, Medicare applies to every single dollar an employee earns, no matter how much that is.
What is the Medicare tax rate?
1.45 percent for the employee and 1.45 percent for the employer, or 2.9 percent in total. On top of that, there is an Additional Medicare Tax of 0.9 percent that applies to an employee's wages above $200,000 in a calendar year. You withhold that additional 0.9 percent from the employee, but there is no employer match on it, which makes it the only part of FICA that you deduct without also paying. So a very high earner has 2.35 percent withheld from their wages while you still pay only 1.45 percent.
Is there a wage limit on Medicare tax?
No, and that is the single most important structural fact about it. Social Security has an annual wage base, which for 2026 is $184,500, and once an employee's year-to-date wages cross it, Social Security withholding stops for the rest of the year. Medicare has no such limit and never stops. It applies to every dollar of wages, at any income level, forever. Which means for a sufficiently high earner, the Medicare tax you pay on them eventually exceeds the Social Security tax, even though Social Security has the far higher rate.
Who pays Medicare tax, the employer or the employee?
Both, in equal shares, for the base tax. The employee pays 1.45 percent, which you withhold from their wages and which appears on their pay stub. You pay a matching 1.45 percent, which comes out of your own funds and appears nowhere they can see. The Additional Medicare Tax of 0.9 percent is the exception: the employee pays it, you withhold it, and you do not match it. Self-employed people pay both halves themselves, 2.9 percent, through self-employment tax.
What is the Additional Medicare Tax?
A 0.9 percent surtax on wages above a threshold, introduced under the Affordable Care Act and in effect since 2013. As an employer, your rule is simple and mechanical: you must begin withholding it in the pay period in which an employee's wages for the year exceed $200,000, and you continue withholding it for the rest of the calendar year. You do this without regard to their filing status, because you cannot know it, and there is no employer match. The employee's own liability is calculated differently, on their tax return, which is why the two figures often do not agree.
When does the Additional Medicare Tax kick in?
For you as an employer, in the pay period in which the employee's year-to-date wages from you exceed $200,000. Not at the start of the year, not when you anticipate it, and not based on their salary: it starts in the actual pay period where the cumulative figure crosses the line. From that point you withhold 0.9 percent on wages above $200,000 and keep doing so through the end of the calendar year. In January it resets and you start again from zero for the new year.
What is the Additional Medicare Tax threshold?
There are two answers and confusing them is the source of most of the trouble. Your withholding threshold as an employer is $200,000, flat, regardless of the employee's filing status. The employee's liability threshold depends on their filing status: $200,000 for single and head of household, $250,000 for married filing jointly, and $125,000 for married filing separately. Those are different rules on purpose, because you cannot possibly know their filing status or their spouse's income, and the difference is reconciled on their tax return.
Does the employer match the Additional Medicare Tax?
No, and this is the mistake that costs employers money. There is no employer match on the Additional Medicare Tax. You withhold 0.9 percent from the employee's wages above $200,000 and you pay nothing additional yourself. It is the only component of FICA where the employee pays and you do not. Employers who set up payroll assuming everything in FICA is matched will overpay, and recovering an overpayment of employment tax is a correction process rather than a simple refund.
Why did no Additional Medicare Tax get withheld if my employee owes it?
Because your withholding rule and their liability rule are different, and both of you followed yours correctly. The classic case is a married couple where each spouse earns $150,000. Neither employee's wages exceeded $200,000, so neither employer withheld anything, and both employers were right. But their combined income of $300,000 exceeds the $250,000 joint threshold, so they owe the tax. Nobody made an error. The employee reconciles it on Form 8959 when they file, and it is not your problem to solve.
What if I withheld Additional Medicare Tax but my employee does not owe it?
Nothing needs fixing and this one resolves itself. It happens when, for example, an employee earning $230,000 is married filing jointly to a spouse with no income: you correctly withhold on the $30,000 above $200,000, but their combined income is below the $250,000 joint threshold, so they owe nothing. The amount you withheld is credited against their total tax liability when they file, and they get the benefit of it. You did your job and the system corrected for it.
What happens if I fail to withhold the Additional Medicare Tax?
You are liable for the tax you failed to withhold. The obligation is yours, not the employee's, and the IRS looks to you for it. There is a partial escape: if the employee later pays the tax themselves on their own return, you are relieved of the tax itself. But you can still be subject to penalties for the failure to withhold, deposit, and report, which are separate obligations from the payment of the tax. Being rescued by your employee's tax return is not the same as having complied.
How do I report Medicare tax?
Quarterly on Form 941, which reports the wages you paid and the Medicare tax for that quarter, including both the withheld employee portion and your matching employer share. The Additional Medicare Tax you withheld is also reported there. At year end, each employee's Medicare wages go in Box 5 of their W-2 and the Medicare tax withheld goes in Box 6, and note that Box 6 includes both the regular 1.45 percent and any Additional Medicare Tax, combined into a single figure rather than shown separately.
What does Medicare employee withheld mean on my pay stub?
It is the employee's share of Medicare tax, deducted from their gross pay. It should be 1.45 percent of their gross wages, and it will be 2.35 percent on any wages above $200,000 for the year because of the Additional Medicare Tax. What it does not show is your matching contribution, which is an equal amount paid by the employer and which appears nowhere on the pay stub at all. So an employee looking at that line is seeing exactly half of what is actually being paid into Medicare on their behalf.
Do pre-tax deductions reduce Medicare tax?
Some do and some do not, and this is where employers get caught. A health insurance premium running through a Section 125 cafeteria plan generally does reduce Medicare wages. A traditional 401(k) contribution does not: it reduces the employee's taxable income for federal income tax purposes but leaves the Medicare base untouched. So an employee who increases their retirement contribution sees their income tax withholding fall while their Medicare stays exactly where it was. On the pay stub this looks like an error and it is entirely correct.
Is the Additional Medicare Tax the same as the 3.8 percent Medicare surtax?
No, and the term Medicare surtax is used for both, which is the whole problem. The Additional Medicare Tax is 0.9 percent on earned income, meaning wages and self-employment income, and it is a payroll tax that you withhold. The Net Investment Income Tax is 3.8 percent on investment income, and it has nothing to do with payroll at all: it is calculated by the taxpayer on their own return and you have no obligation regarding it whatsoever. If somebody mentions a Medicare surtax, establish which one they mean before you act.
Has the $200,000 threshold ever gone up?
No. It has been $200,000 since the tax took effect in 2013, and it is not indexed for inflation. Neither are the filing-status thresholds. Which means that as wages rise over time, more employees cross the line every year without any change in the law, and more employers find themselves having to withhold something they have never withheld before. If you have never dealt with the Additional Medicare Tax, that is not a permanent state, and a single well-paid hire or a large bonus can put you into it.
Does a bonus trigger the Additional Medicare Tax?
It can, and it is the most common way a small employer encounters this for the first time. The threshold is based on cumulative wages for the calendar year, and a bonus counts as wages. So an employee on a $180,000 salary who receives a $40,000 bonus in December crosses $200,000 in that pay period, and you must begin withholding the Additional Medicare Tax on the excess in that very run. This is worth catching before you process it, because a bonus that pushes somebody over the line is a payroll change nobody flagged.
Can an employee opt out of Medicare tax?
No. Medicare tax is mandatory and there is no election, no exemption for ordinary employees, and no way for either of you to decline it. The employee cannot ask you to stop withholding the Additional Medicare Tax once you are required to withhold it, and you cannot agree to stop even if they ask. If they believe they will over-pay for their circumstances, their remedy is on their tax return, where any excess is credited back. It is not something either of you can adjust at the payroll level.
Do I withhold Medicare tax from contractors?
No. Medicare tax applies to employees, not to independent contractors. A contractor pays both halves themselves through self-employment tax and you withhold nothing. Which is also why misclassifying an employee as a contractor is expensive: if the classification is overturned, you owe the Medicare tax you never withheld, plus your matching share, plus penalties and interest, for the entire period. The forms follow the classification, and the classification is a legal test rather than a preference.
What does Medicare tax actually fund?
It funds Medicare Part A, the hospital insurance portion, through the Hospital Insurance Trust Fund. That covers inpatient hospital care, skilled nursing facility care, hospice, and some home health services for beneficiaries. It is worth knowing because employees occasionally ask, and because it explains why the tax has no ceiling: it is not calculated like an insurance premium tied to an eventual individual benefit the way Social Security notionally is. It is a broad-based funding mechanism, and that difference in design is exactly why one of the two has a wage cap and the other does not.