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Medicare Tax

A tax used to fund the Medicare system. Unlike Social Security tax, the Medicare tax (1.45%) applies to income without any yearly maximum. Your company pays a similar percentage. When nonqualified stock options and stock appreciation rights are exercised, and when restricted stock and restricted stock units vest, Medicare tax is owed.

In 2013, the Medicare tax rate for individuals (not the company rate) rose to 2.35% for single filers with yearly income of more than $200,000 and for married joint filers with yearly income of more than $250,000.

Social Security and Medicare taxes are collectively often called FICA taxes because they are collected under the authority of the Federal Insurance Contributions Act. FICA taxes are also called employment taxes or payroll taxes.

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