What is the rate of Medicare taxes applied to earned income?

The correct answer reflects that Medicare taxes are applied at a flat rate of 1.45% to all earned income. This tax is part of the Federal Insurance Contributions Act (FICA) and is used to fund the Medicare program, which provides healthcare for individuals aged 65 and older, as well as certain younger individuals with disabilities.

Additionally, for high-income earners, there is an extra Medicare tax of 0.9% that applies to income over certain thresholds, but the base rate remains at 1.45% for all earned income. Therefore, the correct answer highlights the foundational aspect of Medicare taxation, which is the consistent 1.45% rate applicable to most taxpayers.

Understanding this helps in grasping the overall tax structure surrounding earned income and the contributions towards Medicare, which is a vital component of financial planning, especially during divorce proceedings. Recognizing the role of these taxes can assist financial analysts, especially those specializing in divorce situations, in appropriately advising clients on their future financial obligations and retirement planning.