Final answer:
Medicare tax is continuously deducted from an employee's earnings without an upper limit, unlike Social Security taxes. The total Medicare tax rate is 2.9%, with employees and employers each paying half, although the employer's share might lower wages indirectly. Independent contractors pay both portions of payroll taxes themselves.
Step-by-step explanation:
The question is asking about the point at which Medicare tax deductions cease when an employee's earnings exceed a certain amount. In contrast to Social Security taxes, which are capped, Medicare tax does not have an upper ceiling, meaning it is imposed at a continuous rate regardless of income. Employees have 1.45% deducted from their paycheck for Medicare and employers match this amount, summing up to a total of 2.9%. As economists note, the employer's contribution may indirectly affect the employee's take-home pay, due to the potential for lower wages resulting from the employer's tax burden.
For those in the gig economy receiving a 1099 tax statement, individuals are considered independent contractors and are responsible for paying both the employee and employer portions of payroll taxes, which includes Medicare tax.