What Percentage of a Worker's Gross Income Is Withheld for Medicare?
- When you work for an employer, that company is responsible for withholding the appropriate amount of Federal income tax, Social Security tax and state and local taxes. Your employer is also responsible for withholding Medicare taxes from your paycheck. As of 2011, employees must pay 1.45 percent of their income to the payroll tax that funds Medicare. Like all taxes, your employer simply deducts Medicare tax from your gross income before you receive your net pay.
- When you are self-employed, you must pay both the employer and the employee side of the Medicare tax. When you work for someone else and your employer not only automatically withholds the 1.45 percent in Medicare taxes from your paycheck, but pays another 1.45 percent. Thus, if you are self-employed, your total Medicare tax is 2.9 percent of your gross earnings, which you generally pay by making estimated tax payments on a quarterly basis.
- Unlike the payroll tax that funds Social Security, the Medicare tax does not have an earnings cap. Although you do not pay Social Security taxes on earnings above $106,800, your employer will withhold 1.45 percent in Medicare taxes no matter what your earnings. Similarly, self-employed individuals pay the combined employee and employer 2.9 percent rate on every dollar earned.
- When you receive your W-2 form from your employer, that document lists the amount of Medicare tax you paid, as well as the total compensation on which that tax was based. You can do a quick calculation to make sure your employer withheld the proper amount of Medicare taxes from your paycheck throughout the year. If you find a discrepancy, you should notify your employer before filing your taxes to resolve the problem.
If you receive part of your income from wages and additional money from self-employment, you are responsible for paying the Medicare taxes you owe on that self-employment income. If you make only a small amount from self-employment, you may be able to make up the difference when you file your annual tax return. If you expect to owe more than $1,000 in extra taxes, however, the Internal Revenue Service could require you to start making quarterly estimated payments.