DEFINITION of 'Medicare Wages'

An employee's earnings that are subject to a U.S. payroll tax known as the "Medicare tax." Similar to the other U.S. payroll tax - Social Security - the Medicare tax is used to fund the government's Medicare program, which provides subsidized healthcare and hospital insurance benefits to retirees and the disabled. Medicare and Social Security taxes are levied on both employees and employers.

BREAKING DOWN 'Medicare Wages'

The employee's share of the Medicare tax is a percentage and is withheld from his or her income. For example the medicare tax was 1.45% of wages in 2011 and other employment compensation. The employer would contribute a matching 1.45%, for a total Medicare tax of 2.9%.

There is currently no upper limit on the amount of earnings subject to the Medicare tax, this limit having been removed with effect from December 31, 1993.

The rate can change and there can be additions. For example, as of 2013 an additional 0.9% hospital insurance tax is assessed on earned income exceeding $200,000 for individuals and $250,000 for married couples filing jointly, bringing their Medicare tax to 3.8%.

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