How to Calculate Annual Medicare Taxes Withheld
The Medicare tax is one of two parts of the Social Security tax that is withheld from employee's paychecks, along with the Social Security tax itself. Since both taxes are simple percentages and go to the same federal department, they are often combined as a single payroll deduction. However, sometimes you need to calculate annual Medicare taxes withheld separately. If you are self-employed, it's useful to know how to calculate annual Medicare taxes withheld for self-employment as well, so you can estimate how much to include in your estimated tax payments each quarter.
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Things You'll Need
- IRS Publication 15, Circular E
- Form 1040, Schedule SE (and instructions)
Instructions
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1
Total the gross earnings. This includes all wages, tips, bonuses and commissions an employer paid. Gross earnings does not include compensation for business expenses (like mileage reimbursements).
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2
Multiply Gross earnings by the current yearly percentage. The Medicare tax is levied on all income, before factoring in withholding allowances or other deductions. Also, there is no income cap as there is with the Social Security tax (the 2009 cap was $106,800). For example, if an employee has gross earnings of $50,000, the Medicare taxes withheld should be 1.45 percent of $50,000, or $725.00.
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3
Calculate self employment Medicare taxes. To estimate Medicare taxes to be withheld as part of estimated income tax payments, use estimated net profit as your starting figure. Take net profit (from line 12, Schedule SE) and multiply by 0.9235 to get net earnings. For example, if your estimated or actual net profit is $50,000, multiply by 0.9235 for net earnings of $46,175.00.
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4
Multiply the net earnings by the self employment Medicare tax rate Using the example from Step 3, if the current percentage is 2.9 percent, you would multiply 2.9 percent times $46,175 for annual Medicare taxes of $1339.08.
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Tips & Warnings
The reason why the self employment Medicare tax rate is twice that for employees is that the employer pays half of the Medicare tax. Self employed individuals are responsible for the entire amount. Be sure you use the correct rate when figuring self employment Medicare tax.
