What Is Medicare Tax?

You'll pay more in Medicare tax if you earn a lot.
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The Federal Insurance Contributions Act, known as FICA, requires that taxpayers contribute to Medicare -- the federal health insurance program that covers the elderly and the disabled. This is commonly what's meant by the Medicare tax.

Federal Insurance Contributions Act

As part of FICA, you pay 1.45 percent of your earnings each paycheck, and your employer matches that, for a total of 2.9 percent. If you're self-employed, you pay the entire 2.9 percent on your own -- this is part of the self-employment tax.

Additional Medicare Tax

Starting in 2013, an additional Medicare tax was imposed on individuals who earn more than $200,000 a year, or $250,000 for married couples who file joint returns. The rate for this tax is 0.9 percent, and the revenues go toward the Medicare provisions of the Affordable Care Act. This extra tax applies only to income you earn over the thresholds. If you have net investment income over the thresholds, it's subject to a 3.8 percent Medicare surcharge tax beginning with the 2013 tax year. This includes capital gains, dividends and interest.

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