What Is Medicare Tax? The 1.45% Rate, the Surtax, and the Cap That Isn’t There

Medicare tax is the payroll deduction that funds Medicare’s Hospital Insurance program, known as Part A, which covers inpatient hospital stays, skilled nursing facility care, hospice, and some home health services once you reach 65. When you look at your pay stub and see a line labeled Medicare or sometimes just “Med,” that’s your Medicare tax. For most employees, the rate is 1.45% of gross wages, and your employer pays a matching 1.45% on top of what you see, so the government collects 2.9% on your wages in total. You only ever see your half, because the employer’s match never lands in your paycheck to begin with.

The single most important feature of Medicare tax is that it has no wage ceiling. The 1.45% applies to every dollar you earn, whether your salary is $35,000 or $3.5 million. This is exactly what makes Medicare tax different from the Social Security portion of FICA, which stops once your year-to-date wages cross an annual cap, $176,100 for 2025 and $184,500 for 2026 according to the Social Security Administration’s contribution and benefit base table. The IRS confirms the 1.45% Medicare rate in Topic No. 751, and it has stayed flat for years. So while your Social Security tax might disappear from your paychecks in November of a high-earning year, your Medicare tax keeps coming out of every single check, all year, every year.

Here’s a concrete paycheck. Suppose you earn $4,000 in gross wages for a single pay period. Your Medicare tax is $4,000 multiplied by 1.45%, which equals $58.00. Your employer sends another $58.00 to the IRS on those same wages, for a combined $116.00. Notice this happens before any federal income tax is calculated. Medicare tax comes off the top of your gross wages, alongside Social Security, before the income-tax withholding is figured. That’s why your take-home pay feels smaller than a simple income-tax estimate would suggest when you first start a job and see the real number hit your account.

It helps to be clear that Medicare tax is completely separate from federal income tax. Income tax depends on your filing status, your deductions, your credits, and the bracket your taxable income falls into. Medicare tax ignores all of that. It’s a flat percentage applied from your very first dollar of wages, with no standard deduction underneath to shield part of it. That’s why a part-time worker who owes zero income tax for the year still sees Medicare tax pulled from every check. The two taxes answer to entirely different rules, and confusing them leads people to badly misjudge their paychecks. If you want to understand the income-tax side that actually flexes with brackets, our federal tax brackets guide walks through it.

A common mistake is assuming you’ll get your Medicare tax back as part of a refund. You won’t. Income tax withholding is an estimate, so over-withholding comes back to you in the spring. Medicare tax is a fixed contribution to the Hospital Insurance program, not an estimate, and there is no refund mechanism for ordinary Medicare tax the way there is for over-withheld income tax. And unlike Social Security, there’s no scenario where you over-pay Medicare tax by holding two jobs, because Medicare has no cap to exceed in the first place. If you earn $150,000 across two employers, each one withholds 1.45% on your wages with them, and that’s all correct; there’s nothing to reclaim.

What you do get for your Medicare tax is future coverage. Paying Medicare tax for at least 40 quarters, roughly ten years of work, generally qualifies you for premium-free Part A at 65, as the Social Security Administration explains in its Medicare overview. So Medicare tax is closer to a prepaid insurance contribution than to a tax that vanishes into general revenue. The 1.45% you pay today is buying you hospital coverage decades from now without a monthly premium, which is a meaningfully different deal from income tax. Whether the program’s finances hold up is a policy debate; the mechanics of what your contribution earns you are not.

One practical note for reading your own stub. Some employers reduce the wages that Medicare tax applies to through pre-tax benefits. Contributions to a traditional 401(k) do not reduce Medicare-taxable wages, even though they cut your income tax, because the law keeps retirement deferrals inside the FICA base. But contributions to a Section 125 cafeteria plan, like pre-tax health insurance premiums or a flexible spending account, generally do reduce Medicare-taxable wages. That means two employees with identical salaries can show slightly different Medicare tax if one routes more pay through a cafeteria plan. It’s a small effect on any single check, but it explains why your Medicare line might not be a clean 1.45% of your stated salary, and it’s the answer we give most often when clients ask why the math doesn’t tie out exactly.

There’s also a quirk on the W-2 itself that confuses people every filing season. Box 5 of your W-2 shows your Medicare wages, and Box 6 shows the Medicare tax withheld. Box 5 is often larger than Box 1, your federal-taxable wages, precisely because 401(k) deferrals lower Box 1 but not Box 5. So if you eyeball your W-2 and see Medicare wages exceeding your taxable wages, that’s not an error; it’s the law keeping retirement contributions inside the Medicare base. When clients flag the gap, this is almost always the reason, and it’s worth checking that Box 6 equals 1.45% of Box 5 (plus the surtax if you’re a high earner) as a quick accuracy test on your employer’s payroll.

If you’d rather not reach for a calculator, the arithmetic on Medicare tax is the simplest in the whole payroll system: multiply your gross pay for the period by 0.0145, and that’s your Medicare tax. There’s no cap to watch, no year-to-date threshold to track, and no point in the year where it stops, which is the opposite of Social Security. Going forward, expect the 1.45% rate to stay put while the surtax thresholds for high earners stay frozen, which means the only way your Medicare tax changes is if your wages change or if you cross into surtax territory. For the vast majority of workers, Medicare tax is the one payroll deduction you can predict to the penny every single pay period.

The absence of a wage cap on Medicare tax is the feature that separates it most sharply from Social Security, and it’s a deliberate policy choice rather than an oversight. Social Security tax stops at an annual wage base, $184,500 for 2026 per the Social Security Administration’s official table, because Social Security benefits are themselves capped. The benefit you can eventually collect is tied to your earnings up to that base and no higher, so contributions stop at the same line. Medicare tax has no cap because Medicare’s hospital benefit isn’t tied to how much you earned; everyone who qualifies gets the same Part A coverage regardless of whether they paid in on $50,000 or $5 million of wages.

That design produces a genuinely different curve as income rises. For Social Security, a worker earning exactly $184,500 in 2026 pays the same Social Security tax as a worker earning $5 million, because both max out at $184,500 times 6.2%, which is $11,439. For Medicare tax, those two workers pay wildly different amounts: 1.45% of $184,500 is $2,675.25, while 1.45% of $5 million is $72,500, and that’s before the 0.9% surtax. The IRS rate guidance in Topic No. 751 confirms the structure, and the upshot is that Medicare tax is the only part of FICA that scales all the way up. The wealthy feel Medicare tax far more than Social Security tax, precisely because Social Security froze for them long ago.

The history explains it. When Medicare was created in 1965, its Hospital Insurance tax originally did have a wage base, mirroring Social Security. Congress removed that cap effective in 1994, deciding that Medicare’s financing should draw on all wages rather than stopping at a ceiling. The reasoning was straightforward: Medicare spending grows faster than wages at the cap, so capping the tax starved the program while uncapping it broadened the base. Since 1994, every dollar of wages has carried the 1.45% Medicare tax, with no upper limit, and the 2013 addition of the 0.9% Additional Medicare Tax pushed the effective top rate even higher for big earners.

Here’s how the no-cap rule plays out across a paycheck year. Imagine you earn $400,000 in salary in 2026, paid across 24 semi-monthly checks of $16,666.67 each. Your Social Security tax stops partway through the year, the moment your cumulative wages hit $184,500, after which the 6.2% disappears from your remaining checks. But your Medicare tax never stops. Every one of those 24 checks has Medicare tax of $241.67 (1.45% of $16,666.67), start to finish. On top of that, once your wages crossed $200,000 mid-year, your employer began withholding the extra 0.9% Additional Medicare Tax on the wages above that line. So your late-year paychecks are larger than your early ones because Social Security dropped off, but the Medicare component, if anything, grew. That asymmetry surprises high earners who expect both taxes to behave the same way.

A common mistake is budgeting as though Medicare tax will taper off the way Social Security does. High earners sometimes assume their year-end paychecks will be much larger once “payroll tax” stops, then are disappointed to find only the Social Security half went away. Medicare tax, plus the 0.9% surtax for those over the threshold, keeps right on going. If you’re planning a year-end bonus or timing discretionary income, model the Medicare tax as a flat 1.45% (or 2.35% above the surtax threshold) on the whole amount, because none of it escapes through a cap. We run these projections for clients with variable compensation, and the no-cap feature is the part that most often gets left out of a back-of-envelope estimate.

For business owners who pay themselves through an S corporation, the no-cap rule reshapes the math. The Social Security portion of payroll tax on your salary stops at the wage base, which is the classic lever behind the S corp self-employment tax strategy. But the Medicare portion does not stop, so even the salary you pay yourself above $184,500 still carries 1.45% employee plus 1.45% employer Medicare tax, and the 0.9% surtax above $200,000. Distributions above a reasonable salary avoid Medicare tax entirely, which is part of why the strategy can work, but it only works if the salary is genuinely reasonable. Set it artificially low to dodge the uncapped Medicare tax and you invite exactly the IRS scrutiny that unravels the whole plan. Our tax strategy guides cover where that line sits.

It’s also worth understanding that the no-cap design is why Medicare tax is sometimes described as mildly progressive while Social Security is regressive at the top. Social Security tax, as a percentage of total income, falls once you pass the wage base, because the rate stops applying. Medicare tax, as a percentage of income, stays flat at 1.45% and then rises to 2.35% above the surtax threshold. So the very feature that makes Medicare tax feel relentless to high earners is the same feature that makes it the more progressive of the two payroll taxes. Whether that’s the right policy is a debate; the mechanical reality is settled.

One question we hear from clients approaching retirement: does Medicare tax stop once I start collecting Social Security or once I enroll in Medicare itself? It does not. If you keep earning wages past 65, past 70, even while drawing benefits and covered by Medicare, the 1.45% Medicare tax keeps coming out of those wages. There’s no age at which you graduate out of paying it. The same holds for the self-employed: an 80-year-old consultant still pays the Medicare portion of self-employment tax on net earnings. The tax is tied to working and earning, not to your age or your enrollment status, which catches a lot of semi-retired people off guard when they pick up part-time or contract work and see Medicare tax still landing on the stub.

The practical takeaway is that you should never count on Medicare tax stopping, because it won’t. Track your Social Security wage base if you want to know when your paychecks will bump up, but treat Medicare tax as a permanent 1.45% on all wages, rising to 2.35% on the portion above your surtax threshold. Going forward, the rate is unlikely to change without an act of Congress, but the frozen surtax thresholds mean a slowly growing share of earners will pay the higher 2.35% on at least part of their wages each year. Plan around the no-cap reality rather than hoping for relief that the law doesn’t provide.

The Additional Medicare Tax is the part of Medicare tax that high earners run into, and it works differently from the base 1.45%, which is exactly why it surprises people at filing time. On top of the standard 1.45% Medicare tax, an extra 0.9% applies to wages and self-employment income above certain thresholds. It’s bolted onto Medicare, not Social Security, so it has nothing to do with any wage base cap. A high earner who has already maxed out Social Security still owes this surtax, because Medicare tax never stops in the first place.

The thresholds depend on your filing status, and they are not indexed for inflation, so they’ve stayed frozen since the surtax took effect in 2013. For single filers, the 0.9% Additional Medicare Tax applies to wages above $200,000. For married couples filing jointly, the threshold is $250,000 of combined wages. For married filing separately, it’s $125,000. The IRS Additional Medicare Tax Q&A spells out these figures and how they interact with withholding. Because the thresholds never rise, more workers drift into this part of Medicare tax every year as wages grow, which is a quiet feature of how the law was written and a reason it increasingly hits ordinary dual-income professionals, not just the wealthy.

Here’s where it gets confusing, and where the mistakes happen. Your employer is required to start withholding the extra 0.9% Medicare tax once your wages from that single employer exceed $200,000, regardless of your filing status. The employer doesn’t know whether you’re single, married, or holding a second job, so it uses the flat $200,000 trigger for everyone. The actual tax you owe, though, is based on your real filing-status threshold and your total household income. That mismatch means your withholding and your true liability often don’t line up, and you reconcile the difference on Form 8959 when you file. Unlike the base Medicare tax, the employer does not match the Additional Medicare Tax; the full 0.9% is on you, with no corresponding employer contribution.

Run the numbers for a married couple. Suppose one spouse earns $190,000 and the other earns $130,000, for $320,000 combined. Their joint threshold is $250,000, so the Additional Medicare Tax applies to $70,000 of wages, the amount above $250,000. That’s $70,000 multiplied by 0.9%, which equals $630 owed. But look at the withholding: neither spouse’s individual wages crossed $200,000, so neither employer withheld any Additional Medicare Tax during the year. The couple owes the full $630 at filing because nothing was withheld along the way. That’s a classic underpayment trap for two-earner households, and it’s precisely the scenario where a surprise balance due appears in April. The fix is simple if you plan ahead: have one spouse submit a new Form W-4 asking for additional withholding, or fold the surtax into quarterly estimates.

Now flip it. A single filer earns $260,000 from one employer. Once their wages passed $200,000 mid-year, the employer began withholding the extra 0.9% Medicare tax on wages above $200,000, so $60,000 got the surtax, or $540 withheld. Their true threshold is also $200,000 since they’re single, so the withholding matches the liability almost perfectly, and there’s little to reconcile on Form 8959. The single high earner with one job usually comes out even; the married couple with two moderate incomes usually owes. That asymmetry is worth knowing before you file, and it’s the single most useful thing to understand about how this layer of Medicare tax behaves in practice.

The self-employed face the same surtax on top of their regular Medicare tax. The 0.9% Additional Medicare Tax applies to self-employment income above the same thresholds, and it’s calculated alongside the 2.9% Medicare portion of self-employment tax. If you have both wages and self-employment income, the rules require you to count your wages first against the threshold, then apply the surtax to self-employment income that pushes you over. That ordering catches people who assume each income stream gets its own threshold; it doesn’t. A common mistake is forgetting the surtax entirely when estimating quarterly payments, then getting hit with both the tax and an underpayment penalty. It’s a small percentage, but on a large income it’s a real number, and the penalty for missing it is pure waste.

There’s a withholding wrinkle that flips the usual problem on its head, too. Suppose a single filer earns $230,000 at one job and then changes jobs midyear, earning $120,000 at the new employer for $350,000 total. Each employer only withholds the 0.9% surtax on the wages above $200,000 with them, so the first withheld on $30,000 and the second withheld nothing, since the new job never crossed $200,000 on its own. But the true liability is 0.9% on everything above the single $200,000 threshold, meaning $150,000 of wages, or $1,350. Withholding came to just $270, leaving $1,080 due at filing. Job changes are a quiet trigger for Additional Medicare Tax surprises, and Form 8959 is where the true number gets sorted out.

It also helps to know what the Additional Medicare Tax is not, because the 3.8% Net Investment Income Tax gets tangled up with it constantly. The 0.9% surtax is part of Medicare tax and applies to earned income, meaning wages and self-employment income. The 3.8% Net Investment Income Tax applies to investment income, like dividends, capital gains, interest, and rental income, and it’s a separate calculation entirely. You can owe one, both, or neither depending on where your income comes from. The IRS Net Investment Income Tax page covers the investment side. Don’t assume that hitting one threshold means you owe both; a retiree living on dividends might owe the investment tax and zero Additional Medicare Tax, while a high-salary employee with no portfolio faces the opposite.

If your household income is climbing toward these thresholds, our tax strategy consulting team can project the Additional Medicare Tax in advance so it’s funded through estimates or extra withholding rather than landing as an April surprise. The planning here is mostly about cash-flow timing rather than avoidance, because the surtax itself is hard to dodge once the income is earned; what you can control is whether the 0.9% shows up as a small adjustment across twenty-four paychecks or as a lump-sum balance due. Because the thresholds stay frozen while wages rise, expect this layer of Medicare tax to touch more dual-income professionals every year, and plan your withholding with that drift in mind well before you file.

Medicare tax and the 3.8% Net Investment Income Tax get confused all the time, partly because they share a threshold structure and partly because both were enacted in the same 2010 legislation. But they are two distinct taxes that hit different kinds of income, and treating them as one is a fast way to misjudge what you owe. Medicare tax, including the 0.9% Additional Medicare Tax for high earners, applies to earned income: wages and self-employment income. The 3.8% Net Investment Income Tax, usually shortened to NIIT, applies to investment income: dividends, interest, capital gains, rental income, royalties, and other passive earnings.

The cleanest way to keep them straight is to ask where the income came from. Did you work for it? Then it’s potentially subject to Medicare tax. Did it come from your investments doing the work? Then it’s potentially subject to NIIT. A software engineer earning a $300,000 salary pays Medicare tax, including the 0.9% surtax on the portion above $200,000, and pays no NIIT if she has no investment income. A retiree living on $300,000 of dividends and capital gains pays NIIT and zero Medicare tax, because he has no wages or self-employment income at all. The IRS Net Investment Income Tax page lists exactly which categories of income count toward NIIT, and the IRS Additional Medicare Tax Q&A covers the earned-income side.

The thresholds look similar, which fuels the confusion. NIIT applies once your modified adjusted gross income exceeds $200,000 for single filers or $250,000 for married couples filing jointly, the same headline numbers as the Additional Medicare Tax. But the two taxes measure those thresholds differently. The Additional Medicare Tax looks at your wages and self-employment income against the threshold. NIIT looks at your total modified adjusted gross income, and then taxes the smaller of your net investment income or the amount by which your MAGI exceeds the threshold. That “lesser of” rule means NIIT can apply to less than your full investment income if you’re only modestly over the line, which is a subtlety people miss when they assume the whole investment haul gets taxed.

Run a combined example, because plenty of high earners owe both. Say a married couple has $280,000 in combined wages and $50,000 in net investment income from dividends and capital gains, for $330,000 in total MAGI. On the Medicare side, the 0.9% Additional Medicare Tax applies to wages above $250,000, so $30,000 times 0.9% equals $270. On the NIIT side, their MAGI exceeds the $250,000 threshold by $80,000, but their net investment income is only $50,000, so NIIT applies to the lesser figure, $50,000. That’s $50,000 times 3.8%, which equals $1,900. The couple owes $270 in Additional Medicare Tax and $1,900 in NIIT, two separate line items computed on two separate forms, for a combined $2,170 in surtaxes on top of their regular income tax. Run them as one calculation and you’ll get the wrong answer.

A common mistake is assuming that because you crossed the $250,000 line, you automatically owe both taxes. You only owe NIIT if you actually have net investment income; with zero investment income, NIIT is zero no matter how high your wages. Likewise, you only owe the Additional Medicare Tax if you have earned income above the threshold; a household living entirely on investments owes no Medicare surtax at all. The thresholds are gates, not switches that turn both taxes on at once. We see self-prepared returns that double-count or, worse, skip one of the two entirely, and the IRS notices, because each tax has its own form.

The forms are where this becomes concrete. The Additional Medicare Tax, part of Medicare tax, is reconciled on Form 8959, which compares what your employer withheld against what you actually owe based on your filing status. NIIT is computed on Form 8960, an entirely separate form with its own logic. Both carry to your Form 1040, but they never touch each other in the calculation. If you’re working with a preparer, both forms should appear in your return when your income warrants them; if only one shows up and you have both wages and investment income above the thresholds, something was missed.

There’s a planning angle that flows from the distinction. Because Medicare tax (including the surtax) hits earned income and NIIT hits investment income, the levers to manage each are different. You can’t make earned income invisible to Medicare tax once it’s earned, but you can sometimes manage NIIT through the timing of capital gains, tax-loss harvesting, or shifting assets into accounts that don’t generate currently taxable investment income. Our capital gains tax strategies guide covers the investment side of that planning. The point is that lumping the two taxes together obscures the fact that they respond to completely different moves.

One area where the two taxes brush against each other is the sale of a business or rental property. Gain on selling a passive rental can land in NIIT, while the wages or guaranteed payments a materially participating business owner draws can land in Medicare tax. Whether you “materially participate” in an activity, a defined IRS concept, often decides which tax the income falls under, and getting that determination right can move thousands of dollars between the two regimes. This is one of the spots where a careful read of the facts pays off, because the same dollar of income can be earned income subject to Medicare tax in one structure and passive income subject to NIIT in another.

The practical takeaway is to treat Medicare tax and NIIT as two separate questions every year: how much earned income do I have above the surtax threshold, and how much net investment income do I have above the MAGI threshold? Answer them independently, run them on their separate forms, and you’ll get the right number. Going forward, because both sets of thresholds are frozen and unindexed, more households will find themselves owing one or both each year as incomes grow, so understanding which tax applies to which dollar is only going to matter more. Don’t let the shared $200,000 and $250,000 figures fool you into thinking they’re the same tax, because they aren’t.

Yes, self-employed people pay Medicare tax, and they pay both halves of it themselves. When you’re a W-2 employee, you pay 1.45% Medicare tax and your employer matches it with another 1.45%, for 2.9% total, but you only feel your half. When you work for yourself as a freelancer, independent contractor, sole proprietor, partner, or single-member LLC owner, there’s no employer to cover the other half, so you pay the full 2.9% Medicare portion yourself as part of self-employment tax. The combined self-employment tax is 15.3%: 12.4% for Social Security plus 2.9% for Medicare.

The no-cap feature of Medicare tax carries over to the self-employed in full. The 2.9% Medicare portion of self-employment tax applies to all of your net self-employment earnings, with no ceiling, exactly like the employee version. The 12.4% Social Security portion, by contrast, stops once your net earnings reach the wage base, $184,500 for 2026 per the Social Security Administration’s official table. So a self-employed consultant netting $90,000 pays the full 15.3% on essentially all of it, while one netting $400,000 pays the 12.4% only on the first $184,500 and the 2.9% Medicare tax on every dollar. The Medicare piece is the part that never lets up.

Two adjustments make self-employment tax less punishing than the headline 15.3% suggests, and both apply to the Medicare portion. First, you don’t apply the rate to your full net profit; you multiply net earnings by 92.35% first, which roughly accounts for the employer-share deduction a regular employee effectively gets. Second, you deduct half of your total self-employment tax as an above-the-line deduction on your Form 1040, which lowers your income tax even if you don’t itemize. The IRS spells out the calculation on Schedule SE, where self-employment tax is computed and carried to your return. These adjustments are not optional; skipping them means overpaying, and we routinely catch self-prepared returns that forget the deduction for half of self-employment tax.

Let’s run real numbers focused on the Medicare piece. Say you net $150,000 from freelance work in 2026. First, multiply by 92.35% to get $138,525 in taxable self-employment earnings. The Medicare portion is 2.9% of $138,525, which equals $4,017.23. The Social Security portion is 12.4% of $138,525, or $17,177.10, since you’re under the wage base. Your total self-employment tax is roughly $21,194, of which the Medicare component is about $4,017. You then deduct half of the total, around $10,597, against your income tax. Compare that to a W-2 employee earning the same $150,000, who pays only their 1.45% Medicare share, or $2,175, with the employer covering the rest. The self-employed person pays nearly double the Medicare tax on the same income before the deduction softens it.

The 0.9% Additional Medicare Tax applies to the self-employed too, on net earnings above the same $200,000 single / $250,000 married thresholds, per the IRS Additional Medicare Tax guidance. A common mistake is forgetting this surtax when calculating quarterly estimated payments. Because no employer withholds anything for the self-employed, the IRS expects you to send estimated taxes four times a year covering income tax, self-employment tax, and the surtax if you’re over the threshold. Skip those payments and you’ll owe penalties on top of the tax, even if you eventually pay the full balance in April. Setting aside roughly 25% to 30% of each payment for taxes, separate from operating cash, keeps you from scrambling when the bill lands.

There’s a benefits angle the self-employed sometimes overlook. Because the Medicare portion of self-employment tax feeds the same Medicare system as employee Medicare tax, paying it builds toward your premium-free Part A coverage at 65, just as an employee’s payroll Medicare tax does. The 40-quarters rule the Social Security Administration describes counts self-employment quarters too. So driving your net profit to near zero to dodge self-employment tax can quietly cost you coverage credits down the road, which is a tradeoff worth weighing rather than reflexively chasing the lowest current-year number.

People who hold a W-2 job and a side business need to coordinate the two, because the surtax thresholds look at combined earnings. If you earn $180,000 in wages and net $60,000 from a side consulting gig, your wages count first toward the $200,000 single threshold, then your self-employment income carries the rest. So $20,000 of wages plus the full $60,000 of self-employment income, $80,000 in all, sits below the line, but the math has to run in the right order on Form 8959. Get the ordering wrong and you’ll either overpay the surtax or underpay and trigger a penalty. Medicare tax on the wage side is already withheld by the employer; the self-employment side you handle through estimates, so the two halves of your Medicare tax picture come from two different mechanisms in the same year. Keep clean books for the side business too, since the Medicare portion of self-employment tax is computed on your net profit, and every legitimate business expense you fail to record inflates that net profit and the Medicare tax that rides on it. Sloppy records don’t just cost you income-tax deductions; they hand you a larger self-employment tax bill, Medicare portion included, than you actually owe.

If your self-employment tax is climbing into five figures, it’s worth a conversation about whether an S corporation election could reduce the base, since paying yourself a reasonable salary and taking the rest as distributions can shrink the income that self-employment tax, including its Medicare portion, applies to. Our tax strategy guides walk through that tradeoff. It’s not automatically the right move; the savings have to outweigh the added payroll cost, higher accounting fees, and the requirement to pay yourself a defensible salary. And remember the Medicare angle specifically: because Medicare tax has no cap, the salary you pay yourself still carries the full 2.9% Medicare tax no matter how high it goes, so the S corp savings on the Medicare side come only from the distributions, not the salary. Going forward, treat the Medicare portion of self-employment tax as a permanent cost on all net earnings, plan estimated payments around it, and don’t let the first-year surprise become a second-year one.