How to Calculate Medicare Tax Witholdings

Medicare tax rates are established yearly by anticipating the monetary needs of the Medicare system covering the hospital portion of medical expenses for those who qualify for Medicare. All U.S. wage earners pay into the trusts that have been established to fund the program. Employees receiving paychecks from an employer, as well as self-employed individuals, pay a calculated percentage of their earnings to support Medicare. After calculating the gross earnings of an hourly employee, it is easy to determine the Medicare tax withholding amount.

Instructions

1. Verify the Medicare tax withholding rate by reviewing the information received from the Internal Revenue Service or by contacting the Social Security Administration. The current withholding rate is printed in Publication 15 (Circular E) Employer's Tax Guide and any corresponding IRS updates that all employers receive throughout the tax year. You can also locate it on the Social Security Administration's website, at SSA.gov.

2. Convert the withholding percentage to a decimal by moving the decimal point two places to the left. For example, the 2009 withholding rate is 1.45 percent. After moving the decimal place of the percentage two places to the left, the decimal is .0145.

3. Multiply the gross income for the pay period by the decimal withholding rate to calculate the Medicare tax withholding. An example would be $600.00 times .0145, which equals a deduction of $8.70.

Tips & Warnings

• If your calculator or spreadsheet program has a percent function, you can use that button rather than converting the percent. The calculator will convert it for you.

• Medicare tax is matched by employers and the total of the two are remitted to the IRS with Social Security taxes and Federal tax withholding.

References

• 2009 Publication 15 (Circular E) Employer's Tax Guide
• Social Security Administration Update 2009