Definition
The payroll tax that funds Medicare: 1.45% of wages withheld from the employee and matched by the employer, with no wage cap. High earners pay an extra 0.9% Additional Medicare Tax on wages above a threshold, and the self-employed pay both halves. It funds the insurance program; it is not the program itself.
Why it matters
Unlike Social Security tax, Medicare tax never stops: every dollar of wages pays it, which is why the largest salaries still see it on all income. For freelancers it is part of the self-employment tax that quarterly estimates must cover.
Example
An employee earning $250,000 pays 1.45% on all of it, $3,625, plus the 0.9% additional tax on wages above the threshold, while their Social Security withholding stopped partway through the year at the wage cap. The employer matches the 1.45% but not the 0.9%.
Put it into practice
Related terms
This definition is educational, not financial, legal, or tax advice. U.S. rules and limits change; verify time-sensitive details with official sources. See our disclaimer.