Medicare Tax: What It Is, How It Works

What Is Medicare Tax? Definition, How It Works

All employees pay 1.45% in Medicare taxes. People earning above a certain threshold may also face an additional 0.9% tax on income or a 3.8% tax on investment income.

Written by

Edited by

other

Updated Jan 23, 2026

Nerdy takeaways

Medicare is a federal health insurance program, and the medicare tax funds medical, hospital and hospice care.
The Medicare tax is a mandatory payroll tax.
Medicare surtaxes may apply to high-earning individuals and families.

What is the Medicare tax?

On July 30, 1965, President Lyndon B. Johnson signed Medicare into law to help cover healthcare costs after age 65, as well as for people with disabilities and certain illnesses. The Medicare tax, which is a type of payroll tax, funds medical, hospital and hospice care for these groups.

What is the Medicare tax rate?

The Medicare tax rate for 2026 is 2.9% and is split between employees and their employer, with each paying 1.45%. It’s a mandatory payroll tax applied to earned income and wages, and comes out of your paycheck just like Social Security tax. Employers who don’t pay face a penalty.

If you’re self-employed, you’ll be responsible for paying both the employer and employee contributions, totaling 2.9%. The good news is that you can likely deduct half of your total self-employment tax when you file your return.

What are the Medicare surtaxes?

A surtax is an additional tax certain people are subject to on top of an existing tax. The Affordable Care Act created two Medicare surtaxes on high earners to fund additional services: the additional Medicare tax and the net investment income tax.

Additional Medicare tax

The additional Medicare tax, also known as the “high earners tax,” is a 0.9% tax on income above $200,000 for individuals or $250,000 for married couples filing jointly.

Net investment income tax

A 3.8% net investment income tax (NIIT) may apply to investment income, which includes capital gains, dividends, annuity distributions, royalties, rent and interest. The income eligibility threshold varies based on your tax filing status, says Colleen Carcone, a Certified Financial Planner and the Director of Wealth Planning Strategies for TIAA in Boston.

“Partnering with an advisor to create a more customized portfolio that considers tax efficiency can help to reduce your exposure to that net investment income tax,” says Carcone.

The full list of income threshold amounts for Medicare surtaxes are below:

Filing Status	Threshold Amount
Head of household (with a qualifying person)	$200,000
Married filing jointly	$250,000
Married filing separately	$125,000
Single	$200,000
Qualifying widow(er) with dependent child	$250,000

Explore more on

Taxes

Article sources

NerdWallet writers are subject matter authorities who use primary, trustworthy sources to inform their work, including peer-reviewed studies, government websites, academic research and interviews with industry experts. All content is fact-checked for accuracy, timeliness and relevance. You can learn more about NerdWallet's high standards for journalism by reading our editorial guidelines.

1.Internal Revenue Service. Find out if Net Investment Income Tax applies to you. Accessed Jan 23, 2026.