Medicare Tax

Medicare tax is a U.S. federal payroll tax withheld from an employee's wages, and matched by the employer in an equal amount, that funds the federal Medicare health insurance program, which primarily provides health coverage for individuals aged 65 and older as well as certain younger individuals with specific disabilities. Medicare tax is one of the two components that together make up FICA tax, alongside Social Security tax. Unlike Social Security tax, which is only applied up to an annual wage base limit, Medicare tax applies to all of an employee's wages without any cap, meaning it continues to be withheld regardless of how high an individual's total annual earnings become. Higher-income employees are also subject to an additional Medicare tax on wages above certain thresholds, which is withheld solely from the employee's portion without a corresponding employer match on that additional amount. Employers are responsible for accurately calculating, withholding, and remitting both the employee and employer portions of Medicare tax, and for reporting these amounts on required payroll tax filings. Because Medicare tax rates and thresholds can be adjusted over time, payroll systems need to stay current to ensure ongoing compliance with this federal tax obligation.