Medicare Tax: What Employers Withhold

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. Their actual liability depends on their filing status, and it might be $250,000 or $125,000. So a perfectly compliant employer 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. 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 federal payroll tax, and then the Additional Medicare Tax.

That surtax is the only part of FICA (the Federal Insurance Contributions Act taxes) 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

The Medicare tax rate is 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. On wages above the threshold, a high earner therefore has 2.35 percent withheld (1.45 plus 0.9), while you keep paying only 1.45.

There Is No Ceiling

Medicare has no wage ceiling. That is the structural fact, and it is what makes it unlike every other federal 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. As IRS Topic 751 states, there is no wage base limit for Medicare tax, so it applies to every dollar an employee earns at any income level whatsoever.

Medicare was not always uncapped. The Social Security Administration records that its hospital insurance tax shared the Social Security wage base from 1966 through 1990, then ran under separate caps of $125,000, $130,200, and $135,000 for 1991 to 1993. The Omnibus Budget Reconciliation Act of 1993 repealed that cap starting in 1994, and the tax has applied to every dollar of wages ever since.

The Social Security wage base for 2026 is $184,500, according to the Social Security Administration. Above that line the 6.2 percent simply stops, while the 1.45 percent keeps coming out of every dollar and you keep matching it. That single cutoff is what produces the arithmetic below.

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. Social Security's ceiling does that. Your match on the Medicare column gets no such relief: it keeps growing with every dollar, 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.

Who Pays It

Both of you, in equal halves, for the base tax. And the employee only ever sees one of those halves.

Note the third row, because it produces a small conversation you will eventually have. A high earner sees 2.35 percent coming out and reasonably concludes that is what Medicare costs. It is not.

You pay another 1.45 percent on top, and it is itemized nowhere they can see, least of all 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.

Treating a worker as a contractor means no Medicare withholding, which is one more reason misclassification is expensive rather than merely untidy. If the classification is overturned, 26 U.S.C. 3509 leaves you owing your full match plus at least 20 percent of the employee share you never withheld, and all of it if the misclassification was intentional.

Medicare Wages and Tips

Medicare wages are the pay the 1.45 percent actually applies to, and they are the figure that lands in Box 5 of the W-2, the line labeled Medicare wages and tips. For most of your employees that number sits very close to gross pay, and it is usually the largest wage figure on the whole form.

Gross wages and Medicare wages are not the same thing, though. Gross pay is everything you paid them. Medicare wages are gross pay minus the short list of items exempt from FICA, plus any reported tips, which is why the box carries both words in its name.

The trouble starts when somebody compares Box 5 against Box 1. Those two boxes are built from different rules, they are meant to disagree, and Box 5 is normally the larger of the two. An employee who spots the gap brings it to you as a payroll error.

So the usual reason Medicare wages and tips runs higher than Box 1 is retirement saving. The IRS 401(k) plan overview puts it plainly: elective deferrals are not treated as current income for federal income tax purposes, but they are wages subject to Social Security and Medicare tax. Defer $15,000 and Box 1 falls by $15,000 while Box 5 does not move.

Section 125 runs the other way. Per the IRS cafeteria plan FAQs, salary reduction contributions are generally outside FICA, so a premium taken through a cafeteria plan reduces both boxes. That is the working difference between the two kinds of pre-tax deduction, and it answers most February W-2 questions.

Where to find the tax itself: Box 6, Medicare tax withheld. It holds the 1.45 percent on everything in Box 5 plus any Additional Medicare Tax on wages above $200,000, combined into one figure rather than listed separately. On the pay stub the same amount reads as Medicare, Medicare employee, or Fed MED/EE. Whatever the label, Medicare employee withheld is the employee's share only: 1.45 percent of the Box 5 figure, 2.35 percent on pay above $200,000, and none of your matching half.

That single figure in Box 6 is deliberate. The W-2 instructions state that every reference to Medicare tax includes Additional Medicare Tax, so an employee who wants the surtax on its own cannot get it from the form.

The Additional Medicare Tax

It is a 0.9 percent surtax, introduced under the Affordable Care Act and in effect since 2013. Your obligation is purely 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 were right, 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 know nothing about and have 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, Form 941, which gives the wages subject to it a line of their own. On the W-2 it goes in Box 6, alongside the ordinary Medicare tax rather than separately from it.

When to Start Withholding

The practical mechanics, because the timing is more specific than most employers realize.

All of that depends on knowing where each person's cumulative wages stand before you approve a pay run, which is a single line of arithmetic nobody does unless it is written down somewhere. One row per employee per run:

How to Calculate Medicare Tax

To calculate Medicare tax, multiply Medicare wages by 1.45 percent for the employee share, match that with 1.45 percent of your own money, then add 0.9 percent on any wages above $200,000 for the year, withheld from the employee and never matched. That is the whole calculation.

What people get wrong is not the arithmetic. It is which number you multiply and when you do it. You run it every pay period against cumulative wages, not once in December against an annual salary.

Here is a full year worked through for one person: $220,000 in gross wages, $8,000 of it taken as health premiums through a Section 125 plan, and no other exempt deductions.

A single pay run is the same sum on a smaller number. Semi-monthly gross of $6,000 with a $250 cafeteria plan premium leaves Medicare wages of $5,750, so $83.38 comes out of the employee and $83.38 comes out of you. No threshold in sight, which is what most runs look like.

Two sanity checks are worth building into your review. Below the threshold, the Medicare line on any stub should be exactly 1.45 percent of Medicare wages, so divide and see. And your share should equal theirs on every run except the ones carrying the surtax, where yours is deliberately smaller.

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 not relieved of liability unless it can show the tax has been paid, by filing Forms 4669 and 4670. That is a paperwork condition rather than an automatic rescue, and it leaves your exposure contingent on somebody else's tax return.

Penalties are a separate track. Even where the employee does pay it and you clear the Forms 4669 and 4670 hurdle, you may still face penalties for having failed to withhold, deposit, and report. 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, and neither are the filing-status thresholds of $250,000 and $125,000. The statute itself, 26 U.S.C. 3101(b)(2), writes all three as fixed dollar amounts with no adjustment clause. 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.

Both also came from the Affordable Care Act, which makes the mix-up even easier. 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 in 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 in full and Medicare is matched only on the base rate. 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.

Frequently Asked Questions