How are medicare wages calculated

how are medicare wages calculated

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If you have employees, you compensate them through payroll; this process requires you to take Medicare tax out of their wages before they’re actually paid. Both you and your employees pay Medicare tax. As of 2012, the Medicare tax rate for employers and employees has stayed the same since 1986.

Taxable Wages Calculation

Before you calculate Medicare tax for an employee, you must determine her taxable wages for the pay period. Subtract applicable nontaxable wages and pretax deductions from her gross compensation to arrive at her taxable wages. Nontaxable wages include lodging, meal and mileage reimbursements. Pretax deductions include section 125 cafeteria plans and parking fees and transit fares. If necessary, contact the Internal Revenue Service for clarification on what constitutes nontaxable wages and pretax deductions for Medicare tax purposes. If the employee doesn’t have any nontaxable wages or pretax deductions, all of her gross pay is subject to Medicare tax.

Employee Withholding


of 2012, calculate Medicare tax at 1.45 percent of all taxable wages. Let’s say an employee’s taxable wages equal $412 for the weekly pay period. Multiply $412 by 0.0145 to get $5.97, which is her Medicare liability for that weekly pay period. If an employee receives a fixed salary, unless her compensation or deductions change, her Medicare withholding stays the same. All employees must pay Medicare tax, unless they work one of the few jobs that deem them exempt. For example, wages paid to students employed by a school where they also attend classes regularly are exempt from Medicare tax.

Employer Rate

As an employer, you pay Medicare tax at 1.45 percent of all taxable wages, as of 2012. All employers must pay Medicare tax, unless tax-exempt. For example, a church or church-controlled organization that’s against paying Medicare tax due to religious reasons may elect FICA exemption by filing Form 8274 with the IRS.

Payment and Reporting Criteria


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