How Much Is the Medicare Tax Rate in 2021?
- February 23, 2021
- Reviewed by John Krahnert
American workers have taxes for Social Security and Medicare withheld from their paychecks. Together, these two income taxes are known as the Federal Insurance Contributions Act (FICA) tax.
The 2021 Medicare tax rate is 2.9%. Typically, you’re responsible for paying half of this total Medicare tax amount (1.45%) and your employer is responsible for the other 1.45%. Your Medicare tax is deducted automatically from your paychecks.
Where do Medicare taxes go, and how is Medicare paid for?
The Medicare tax that is withheld from your paychecks helps fund health care costs for people enrolled in Medicare.
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Medicare is financed through two trust fund accounts held by the United States Treasury:
- Hospital Insurance Trust Fund
- Supplementary Insurance Trust Fund
The funds in these trusts can only be used for Medicare.
Hospital Insurance Trust Fund
The Hospital Insurance Trust is largely funded by Medicare taxes paid by employees and employers, but is also funded by:
- Interest earned on trust fund investments
- Income taxes paid on Social Security benefits
- Medicare Part A premiums from people who are not eligible for premium-free Part A
The Hospital Insurance Trust Fund pays for Medicare Part A benefits and Medicare Program administration costs. It also pays for Medicare administration costs and fighting Medicare fraud and abuse.
Supplementary Medical Insurance Trust Fund
This trust is largely funded by the premiums paid by people enrolled in Medicare Part B (medical insurance) and Medicare Part D (Medicare prescription drug plans), but it is also funded by:
- Interest earned on the trust fund investments
- Funds authorized by Congress
The Supplementary Medical Insurance Trust Fund pays for:
- Medicare Part B benefits
- Medicare Part D prescription drug coverage
- Medicare Program administration costs
Medicare taxes and the Affordable Care Act
The Affordable Care Act (ACA) was passed in 2010 to help make health insurance available to more Americans.
To aid in this effort, the ACA added an additional Medicare tax for high income earners. This raised the tax (as of 2021) from 1.45 percent to 2.34 percent for people with an earned annual income of more than $200,000 ($250,000 for married couples filing jointly).1
The additional tax (0.9% in 2021) is the sole responsibility of the employee and is not split between the employee and employer.
If you make more than $200,000 per year in 2021, the 0.9 percent surtax only applies to the amount you make that is over $200,000. For instance, if you make $300,000 per year, you and your employer each pay the standard 1.45 percent Medicare tax for the first $200,000 you make, and you pay the additional 0.9 percent Medicare tax on the $100,000 that is left.
Medicare taxes for the self-employed
Even if you are self-employed, the 2.9% Medicare tax applies.
Typically, people who are self-employed pay a self-employment tax of 15.3% total – which includes the 2.9% Medicare tax – on the first $142,800 of net income in 2021.2
The self-employed tax consists of two parts:
- 12.4% for Social Security
- 2.9% for Medicare
You can deduct the employer-equivalent portion of your self-employment tax in figuring your adjusted gross income. If you’re unsure of how to do this, a tax professional may be able to help.
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1 Internal Revenue Service. Questions and Answers for the Additional Medicare Tax. (Feb. 16, 2021). www.irs.gov/businesses/small-businesses-self-employed/questions-and-answers-for-the-additional-medicare-tax.
2 Internal Revenue Service. Self-Employment Tax (Social Security and Medicare Taxes). (Jan. 19, 2021). Retrieved from www.irs.gov/businesses/small-businesses-self-employed/self-employment-tax-social-security-and-medicare-taxes.
About the author
Christian Worstell is a licensed insurance agent and a Senior Staff Writer for MedicareAdvantage.com. He is passionate about helping people navigate the complexities of Medicare and understand their coverage options.
His work has been featured in outlets such as Vox, MSN, and The Washington Post, and he is a frequent contributor to health care and finance blogs.
Christian is a graduate of Shippensburg University with a bachelor’s degree in journalism. He currently lives in Raleigh, NC.
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