Medicare Taxes for Employers and Employees

Medicare taxes are one half of the Federal Insurance Collections Act (FICA) taxes, and fund the Medicare hospital insurance system. Social Security taxes, the other half, fund the federal Social Security system for retirement, survivors, and disability insurance.

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• The Medicare tax rate is 1.45% each for the employee and employer.

• Most wages are subject to Social Security. Some, e.g., 401(k) contributions, are not.

• There is no wage base limit for Medicare taxes. All covered wages are subject to Medicare.

• There is an Additional Medicare tax of .9% on wages over $200,000 ($250,000 for married couples filing jointly) that are paid to an employee. Only employees pay the Additional Medicare tax.

• Employees cannot claim withholding allowances for Medicare taxes on their W-4s.

• Employers report their Medicare taxes quarterly on Form 941 or annually on Form 944. Employees report Medicare taxes annually on Form 1040.