On a W-2 paycheck, Medicare tax is split evenly: you pay 1.45% of your gross wages and your employer pays a matching 1.45% from its own money, for a combined 2.9%. High earners pay an extra 0.9% on wages above certain thresholds, and that surcharge falls entirely on the employee side. Everything else about W-2 Medicare tax — the lack of a wage cap, the gap between Box 1 and Box 5, the way pre-tax deductions behave — flows from that basic split.
How the 1.45% Split Works
Federal law divides the basic Medicare tax down the middle. Under Internal Revenue Code Section 3101(b), every employee owes 1.45% on all wages received through employment.1Office of the Law Revision Counsel. 26 USC 3101 – Rate of Tax Under Section 3111(b), the employer owes a separate 1.45% excise tax on those same wages, paid from the company’s own funds.2Office of the Law Revision Counsel. 26 USC 3111 – Rate of Tax Add them together and 2.9% flows into the Hospital Insurance Trust Fund, which pays for inpatient hospital care, skilled nursing stays, home health services, and hospice.3Medicare.gov. How Is Medicare Funded?
You never write a check for your share. Section 3102 requires your employer to deduct the 1.45% from your wages as they are paid and remit both halves to the IRS.4Office of the Law Revision Counsel. 26 USC 3102 – Deduction of Tax From Wages Your paycheck shows the employee half as a withholding line. The employer half never appears on your pay stub or your W-2, because it is a business expense of the company, not something taken from you.
No Cap on Medicare Wages
Social Security tax stops once your earnings hit the annual wage base, which is $184,500 for 2026.5Social Security Administration. Contribution and Benefit Base Medicare tax has no such ceiling. Every dollar of covered wages is taxed at 1.45% on each side, no matter how high your income goes.6Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates
You can see this on a mid-year pay stub if you are a high earner: once you cross the Social Security cap, that withholding line goes to zero, and your take-home jumps. The Medicare line keeps running at 1.45% on every paycheck for the rest of the year.
The 0.9% Additional Medicare Tax Falls on You Alone
On top of the standard 1.45%, the Affordable Care Act added a 0.9% Additional Medicare Tax on wages above certain thresholds. It is written into Section 3101(b)(2) and applies only to the employee. Your employer owes nothing extra.1Office of the Law Revision Counsel. 26 USC 3101 – Rate of Tax The thresholds depend on filing status:
- Single or head of household: $200,000
- Married filing jointly: $250,000
- Married filing separately: $125,000
These amounts are not indexed for inflation, so they stay the same each year unless Congress changes them.7Internal Revenue Service. Instructions for Form 8959 Above the threshold, your effective Medicare rate on the excess wages rises to 2.35%. The employer’s share stays at 1.45% on every dollar.
Why Your Withholding May Not Match What You Actually Owe
Your employer is required to start withholding the extra 0.9% once your wages with that employer pass $200,000 in a calendar year, regardless of your filing status or what another employer pays you.8Internal Revenue Service. Questions and Answers for the Additional Medicare Tax That flat $200,000 trigger creates mismatches both ways.
If you file jointly and your household wages stay under $250,000, your employer may have withheld the surcharge on wages where you did not actually owe it. If you file separately, you owe at $125,000 but your employer will not start withholding until $200,000. If you hold two jobs and neither one pays you over $200,000, neither employer will withhold the surcharge even if your combined wages blow past the threshold.
All of these get sorted out on Form 8959, which you file with your annual return. The form calculates what you actually owe based on your filing status and total wages, then compares it to what was withheld.7Internal Revenue Service. Instructions for Form 8959 If you expect to owe more than your employer will withhold, you can make estimated tax payments or submit a new Form W-4 asking for extra income tax withholding.8Internal Revenue Service. Questions and Answers for the Additional Medicare Tax
Which Paycheck Deductions Shrink Medicare Wages
Not every pre-tax deduction reduces the wages your Medicare tax is calculated on, and the differences surprise people.
Contributions to a Section 125 cafeteria plan — health insurance premiums, medical and dependent care flexible spending accounts — are generally exempt from Medicare tax. Health Savings Account contributions made through payroll reduce Medicare wages as well. Two cafeteria plan items go the other way: employer-provided group-term life insurance coverage above $50,000 and adoption assistance benefits still count toward Medicare wages.9Internal Revenue Service. FAQs for Government Entities Regarding Cafeteria Plans
Traditional 401(k) deferrals do not reduce Medicare wages. Pre-tax retirement contributions lower the wages shown in Box 1 of your W-2, but the IRS requires employers to include those same contributions in Box 5.10Internal Revenue Service. Retirement Plan FAQs Regarding Contributions The same holds for 403(b) and 457 deferrals. You pay the 1.45% on money going into your retirement account, and so does your employer.
Bonuses, commissions, overtime, vacation pay, and tips all count as Medicare wages. The imputed cost of employer-provided group-term life insurance above $50,000 is also included, calculated from an IRS premium table rather than the premium your employer actually pays.11Internal Revenue Service. Group-Term Life Insurance
Finding the Numbers on Your W-2
Your W-2 reports Medicare information in two boxes. Box 5, “Medicare wages and tips,” shows the total compensation subject to Medicare tax for the year. Box 6, “Medicare tax withheld,” shows the dollar amount actually deducted from your paychecks: your 1.45% share plus any Additional Medicare Tax that was withheld.12Internal Revenue Service. 2026 General Instructions for Forms W-2 and W-3
Box 6 never includes the employer’s matching 1.45%. That match is a separate business expense and does not appear anywhere on your W-2 as employee withholding.
Why Box 1 and Box 5 Often Differ
If Box 5 is larger than Box 1, it almost always comes down to retirement contributions. Your 401(k), 403(b), or 457 deferrals reduce federal income tax wages (Box 1) but not Medicare wages (Box 5).10Internal Revenue Service. Retirement Plan FAQs Regarding Contributions Cafeteria plan items like health premiums and FSA contributions come out of both boxes. So the gap is roughly your pre-tax retirement contributions for the year.
A Quick Accuracy Check
Multiply Box 5 by 0.0145. If you earned under $200,000 at that employer, the result should match Box 6. If you earned over $200,000, Box 6 will be higher by 0.9% of the excess, because of the Additional Medicare Tax your employer was required to withhold. If the numbers do not reconcile, raise it with your payroll department before you file. Correcting a W-2 early is easier than amending a return later.
Two Taxes That Are Not This Tax
High earners sometimes see references to a “3.8% Medicare tax” and assume it hits their wages. It does not. The 3.8% Net Investment Income Tax under IRC Section 1411 applies to investment income — interest, dividends, capital gains, rental income, and royalties — not to wages or self-employment income.13Office of the Law Revision Counsel. 26 USC 1411 – Imposition of Tax The dollar thresholds happen to match the Additional Medicare Tax, which adds to the confusion, but wages are explicitly excluded from the NIIT and investment income is explicitly excluded from the Additional Medicare Tax.
If you have freelance or side-business income alongside your W-2 job, Medicare tax works differently on that money. You pay the full 2.9% on your self-employment earnings, because there is no employer to split the bill with. You can deduct the employer-equivalent half when calculating adjusted gross income.14Internal Revenue Service. Self-Employment Tax (Social Security and Medicare Taxes) The 0.9% Additional Medicare Tax also reaches self-employment income above the filing-status thresholds, and your W-2 wages and self-employment earnings get combined when the IRS checks whether you crossed the line.