2023 Medicare Tax Rate
The 2023 Medicare Tax Rate is 2.9%. Both the employer and employee pay 1.45% each (2.5% total). Those that have higher income could pay a higher percentage tax. On your paycheck, you will see a line item for Medicare tax with a deduction.
If you are self-employed, you will pay the full 2.9% and will pay the tax with your quarterly filings.
Key Topics in this article:
- What is Medicare tax
- Social Security Tax
- FICA Tax Rate
- Medicare Surtax
- Additional Medicare Tax
- Who pays Medicare tax
- Frequently Asked Questions
Prefer to watch a short video? Click below to better understand the 2023 Medicare Tax Rate
What is Medicare Tax?
Medicare taxes are a type of payroll tax. This tax is automatically deducted from your paycheck to help fund Medicare Part A.
Social Security has its own tax. Together, these two taxes are known as FICA (Federal Insurance Contributions Act) taxes.
Social Security Tax Rate
The second type of tax deducted from your paycheck is the social security tax (OASDI). OASDI refers to Old-Age, Survivors and Disability Insurance. These taxes are distributed into a trust fund in the US Treasury.
The tax rate for Social Security in 2023 is 6.2%, each paid by employee and employer.
Self-employed individuals will pay the total 12.4% when you file your quarterly returns.
FICA Tax Rate
The FICA tax rate, or (Federal Insurance Contributions Act tax rate), is 7.65%.
FICA tax is the combination of your Medicare and Social Security taxed. FICA tax is not an another deduction from your paycheck.
Some payroll companies group Medicare and Social Security tax under one deduction. You may notice this as the FICA deduction on your paycheck.
Medicare Surtax
Medicare Surtax is not the same is “Additional Medicare Tax”. In the Affordable Care Act, there is a provision that states 3.8% net investment income tax. Medicare surtax is used to help fund Medicare expansion.
The Medicare surtax applied to taxpayers with higher incomes. Your modified adjusted gross income (MAGI) that have unearned income from sources like;
- Dividends
- Taxable interest
- Capital Gains
- Non-qualified annuities
- Royalties
- Trust or Estate
Talk to your tax professional to determine if the surtax applies to you. If applicable, you will need to complete IRS Form 8960.
Additional Medicare Tax
Certain individuals may have to pay an additional tax rate based on income level. Subject to change, the current threshold that triggers the increased tax is $200,000 in a calendar year. If you file more than $200,000, you will pay an additional 0.9%.
Fun Fact: According to U.S. Centers for Medicare and Medicaid services, Medicare spent $926 billion in 2020 in healthcare cost. And, provided coverage for over 62 million Americans.
Getting Help with Medicare
Our team of licensed experts can help you determine if you qualify for Medicare. You may be eligible for premium-free Part A. Your agent can also help you apply for Medicare and/or Medicaid and find a Medicare health plan in your area.
Call 866-633-4427 today.
Medicare Tax Frequently Asked Questions
Who pays Medicare tax?
The rule of thumb (in most cases) is that all US-based employers, employees, and self-employed individuals pay the Medicare tax, regardless of citizenship and status of the employee or employer.
Some exceptions apply and you can discuss eligibility with your employer or tax professional.
Why do I pay Medicare tax?
Even though you may not be eligible for Medicare or Social Security, you will still notice these taxes withheld from your paycheck.
The Medicare tax and Social Security tax payments you make are contributing to your retirement and Medicare health cost and coverage.
To be eligible for Social Security, you must be age 62. To be eligible for Medicare, you must be age 65.
You may qualify for Medicare and/or Social Security early if you have a disability for two consecutive years or have certain chronic conditions such as ESRD (End Stage Renal Disease) or ALS (Lou Gehrig Disease).
Who doesn’t have to pay Medicare taxes?
There are a few exceptions to everyone paying Medicare taxes that include the following.
- Wages or salary paid to an ordained, commissioned or licensed minister of a church — so long as it’s for work done in the course of their ministry.
Money paid to a child under the age of 18 working for a parent if under certain conditions qualify.
Under certain conditions, money for services performed as a student nurse.
What is the Medicare Tax Used for?
Medicare tax payments are used for funding the Hospital Insurance trust fund (HI trust fund).
The hospital insurance trust fund (HI trust fund) is used to provide benefits for Medicare Part A services. Medicare Part A coverage includes: hospital admission, skilled nursing, home health care, hospice care and more.
The hi trust fund also helps Medicare Program administration for things like, collecting Medicare taxes, paying benefits and fighting fraud and abuse
The hospital trust fund is also funded by:
- Income taxes paid on Social Security benefits
- Interest earned on the trust fund investments
- Medicare Part A premium from people who aren’t eligible for premium-free Part A
Is there a wage base limit for Medicare tax?
There is no wage based limit on Medicare tax. All of your covered wages in a given calendar year are subject to Medicare tax.
However, there is a wage base limit on the Social Security tax, which is $147,000 for 2022.
What are Medicare trust funds?
Medicare trust funds are accounts held by the U.S. Treasury. The funds in these accounts can only be used for Medicare. CMS is the federal agency that runs the Medicare program.
There are two types of Medicare trust funds.
- Hospital Insurance Trust Fund (HI trust fund)
- Supplementary Medical Insurance Trust Fund (SMI trust fund)
The hospital insurance trust fund is used to pay for Medicare Part A services and administration
The Supplementary Medical Insurance Trust Fund is used to pay for Medicare Part B and Medicare Part D services and administration.
Both funds also pay for services to help fight fraud, waste and abuse (FWA).
Is Medicare Mandatory?
Medicare is not mandatory, but if you are a U.S.-based employer, employee, or self-employed person, you are still required to pay Medicare taxes.
Once you become eligible for Medicare, you can delay your benefits. However, if you decide to enroll in Medicare after your initial eligibility, you could be penalized and pay a higher premium.
Who Pays for Medicare?
All US-based employees, employers and self-employed individuals must pay for Medicare through Medicare payroll taxes, regardless of citizenship or employer status.
If you did not pay into Medicare you will likely have to pay for Medicare Part A.
Medicare Part B is paid for by Medicare beneficiaries that have qualified for and are receiving Part B benefits. Part B premiums will vary based on time of enrollment and income.
Can I reduce the Medicare Surtax?
Maybe. You could consider selling some of your investments at a loss to offset gains. This is not financial advice and you should consult with a tax professional.
