You probably see it every single time you open your paystub. That little line item labeled "Medicare" or "FICA-HI" that nibbles away at your gross pay. It’s annoying, sure. But honestly, most people have no clue how that money actually gets there or who, exactly, is on the hook for it.
Basically, if you work in the United States, you're paying it. There is almost no way around it. Whether you're flipping burgers, performing heart surgery, or running a boutique dog grooming business from your garage, the IRS wants its cut for the national health insurance fund.
In 2026, the rules are as firm as ever, though a few things have shifted for high earners and the self-employed. It isn't just a "flat tax" anymore. It's a tiered system that targets different types of income differently.
The 1.45% Reality for Employees
If you have a "normal" job—what tax nerds call W-2 employment—your contribution is simple. You pay 1.45% of every dollar you earn. There is no "ceiling" on this. Unlike Social Security taxes, which stop once you hit a certain amount of income ($184,500 in 2026), the Medicare tax keeps going forever.
If you make a million dollars, you pay 1.45% on the millionth dollar.
Your boss isn't getting off easy, either. The employer has to match that 1.45% penny for penny. This is why many small business owners groan when they hire their first employee; they realize they aren't just paying a salary, they're paying a "tax tax" on top of it.
Why the Self-Employed Pay Double
Working for yourself is great until you see the tax bill. Because there is no "employer" to match your contribution, the IRS decides that you are both the employee and the employer.
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This means you pay the full 2.9% yourself.
It feels like a gut punch. However, there’s a tiny bit of mercy in the tax code. You get to deduct the "employer" half of that tax (1.45%) when you calculate your adjusted gross income. It doesn't make the bill go away, but it lowers the amount of other income taxes you owe. Sorta like a consolation prize for being your own boss.
The $400 Rule
You don't have to worry about this if you just made twenty bucks mowing a neighbor's lawn. You only start owing this tax once your net earnings from self-employment hit $400 for the year. Once you cross that line, the IRS expects you to track it.
The High-Earner "Surcharge"
Things get spicy once you start making "good money." Back in the day, everyone paid the same rate. Not anymore. Since the Affordable Care Act (ACA), there is an Additional Medicare Tax of 0.9%.
This only kicks in once you cross certain income thresholds:
- $200,000 for single filers or heads of household.
- $250,000 for married couples filing jointly.
- $125,000 for married couples filing separately.
If you’re a single person making $250,000, you pay the standard 1.45% on everything. Then, on that last $50,000, you tack on an extra 0.9%. That’s a total of 2.35% on your top-tier earnings.
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Here is the weird part: your employer has to start withholding this extra 0.9% as soon as they pay you more than $200,000. They don't care if you're married or what your spouse makes. This often leads to "accidental" over-withholding or under-withholding.
Imagine you and your spouse both earn $150,000. Neither of your employers will withhold the extra tax because neither of you hit the $200,000 mark individually. But together? You’re at $300,000. That’s $50,000 over the joint threshold. You’ll owe that extra money when you file your return in April, and if you didn't plan for it, it’s a nasty surprise.
Who Actually Gets a Pass?
Almost nobody. But there are a few "lucky" groups.
Non-resident aliens on certain visas—like F-1, J-1, or M-1 students—are often exempt if they’re doing work related to their studies. Once they become "resident aliens" for tax purposes (usually after five years), the exemption vanishes.
Religious groups like the Amish can sometimes opt-out if they have a conscientious objection to public insurance, but they have to file specific paperwork and prove they have their own community-based support system. It’s not a loophole for the average person.
Investment Income is another big one. Generally, you don't pay "payroll" Medicare tax on stocks, capital gains, or dividends. However, the government thought of that too. If you're wealthy enough, you pay the Net Investment Income Tax (NIIT), which is 3.8%. It’s basically Medicare tax with a fancy hat on.
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What Most People Get Wrong About Retirement
I’ve heard people say, "I'm 65, I'm on Medicare now, so I don't have to pay the tax anymore."
Wrong.
If you’re 70 years old and still working a part-time job at a hardware store, you are still paying that 1.45%. The tax is based on work, not on whether you are currently using the benefits. The only way to stop paying it is to stop earning "earned income."
Passive income—like your Social Security checks or your 401(k) withdrawals—is generally not subject to the Medicare payroll tax. You already paid your dues on that money years ago when you earned it.
The "Nanny Tax" Trap
If you hire someone to help around the house—a nanny, a gardener, a cook—and you pay them more than $3,000 in 2026, you might technically be an employer.
This means you are responsible for withholding their Medicare tax and paying your own employer share. Many families ignore this, thinking of it as "under the table" cash. But the IRS is getting much better at tracking these payments through digital apps. If you get caught, the back taxes and penalties usually dwarf the original tax amount.
Taking Action: Your Next Steps
Don't just let the money disappear without a plan.
- Audit your paystub: If you're a high earner, check if the 0.9% is being taken out correctly. If you have two jobs, you might be under-paying and heading for a penalty.
- Adjust your W-4: If you realize you'll owe the Additional Medicare Tax because of a spouse’s income, use the "Extra Withholding" line on your W-4 to cover the gap throughout the year.
- Self-Employed? Move 3%: Every time a client pays you, move 2.9% (or just round it to 3%) into a high-yield savings account specifically for Medicare taxes. Don't wait until tax season to find that money.
- Consult a Pro for NIIT: If your total income is hovering around $200,000 and you have a lot of stock sales, talk to a CPA about timing your gains to avoid the 3.8% investment tax.
Medicare tax isn't the biggest tax you'll pay, but it's the most persistent. It follows you from your first summer job until the day you punch the clock for the last time. Understanding the thresholds is the only way to avoid a "tax day" headache.