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The Medicare Tax and Why You Pay It
- Who pays the Medicare tax?
- What are the Medicare tax rates?
- What is the Additional Medicare Tax?
The Medicare tax is a payroll tax that applies to all earned income and supports your health coverage when you become eligible for Medicare. The tax is automatically deducted from your paycheck each month and is a tax on your earnings, including wages, tips, certain Railroad Retirement Tax Act (RRTA) benefits, and self-employment earnings that fall above a certain level. There is no minimum income limit, and all individuals who work in the United States must pay the Medicare tax on their earnings.
Who pays the Medicare tax?
Generally, all employees who work in the U.S. must pay the Medicare tax, regardless of the citizenship or residency status of the employee or employer. In certain limited situations, you may have to pay the Medicare tax on income earned outside of the United States (your employer should be able to confirm if this applies to you). If Medicare taxes are withheld from your paycheck in error, you should contact your employer to ask for a refund.
What are the Medicare tax rates?
The Medicare tax rate is determined by the IRS and is subject to change. The Federal Insurance Contributions Act, or FICA, tax rate for earned income is 7.65% in 2022, which consists of the Social Security tax (6.2%) and the Medicare tax (1.45%). The Medicare tax is one of the federal taxes withheld from your paycheck if you’re an employee or that you are responsible for paying yourself if you are self-employed.
If you are self-employed, you’ll pay a higher tax rate, since you’ll be responsible for paying both the employee portion and the share that is normally paid by your employer. Visit IRS.gov or contact Social Security for the current self-employment tax rate by calling 1-800-772-1213 (TTY 1-800-325-0778), Monday through Friday, from 7AM to 7PM in all U.S. time zones.
What is the Additional Medicare Tax?
The Affordable Care Act expanded the Medicare payroll tax to include the Additional Medicare Tax. This new Medicare tax increase requires higher wage earners to pay an additional tax (0.9%) on earned income.
All types of wages currently subject to the Medicare tax may also be subject to the Additional Medicare Tax. An individual owes Additional Medicare Tax on all cumulative wages, compensation, and self-employment income once the total amount exceeds the threshold for their filing status.
Who pays the Additional Medicare Tax?
Individuals are required to pay the Additional Medicare Tax if their individual wages, compensation, and self-employment income (combined income if married and filing a joint return) exceed certain wage base limits.
What are the wage base limits for the Additional Medicare Tax?
Here are the wage base limits for the Additional Medicare Tax as of 2022:
|Filing Status||Maximum Amount|
|Married (filing jointly)||$250,000|
|Married (filing separately)||$125,000|
|Single, head of Household, or qualifying widow(er) with dependent child||$200,000|
Example of how the Additional Medicare Tax works
Single individuals can have a maximum income of $200,000 before they are subject to the Additional Medicare Tax. Should the cumulative income exceed that amount, they will then be required to pay the Additional Medicare Tax amount (0.9%).
All wages currently subject to the Medicare Tax are also subject to the Additional Medicare Tax. An individual owes Additional Medicare Tax on all cumulative wages, compensation, and self-employment income that exceeds the threshold for their filing status.
Income tax basics
The federal government and state and local governments set tax laws and collect taxes. They may use your taxes for schools, Social Security, defense programs, maintaining highways, and more, according to the Tax Foundation.
For more information about federal taxes, see the irs.gov website. Look on your state’s official website for information about state and local taxes.
Medicare tax frequently asked questions
What is the Medicare tax?
Also called the hospital insurance tax, the Medicare tax helps fund the Medicare program. It’s typically withheld from your taxes, according to the Internal Revenue Service.
Are Medicare premiums tax-deductible?
According to H&R Block, you might be able to deduct certain Medicare premiums in some limited situations. Ask a tax specialist to see if you qualify.
What is the Medicare employee tax?
The IRS (Internal Revenue Service) levies a federal tax to fund Medicare. The Medicare tax rate is 1.45% of your taxable income for employees. There is an “Additional Medicare Tax” that may apply if your income is more than $200,000 per year, according to the IRS.
This article is for general information and may not be updated after publication. Consult your own tax, accounting, or legal advisor instead of relying on this article as tax, accounting, or legal advice.
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Medicare Part A
Part A of Medicare covers hospitalisation. Inpatient treatment, limited time in a licenced nursing facility, limited home health care services, and hospital care are all covered under Part A.
Medicare Part B
Non-hospital medical costs such as doctor's appointments, blood tests, x-rays, diabetes testing and supplies, and outpatient hospital treatment are covered by Part B benefits. For this component of the original health insurance, you pay a monthly fee.
Medicare Part C
In a health insurance plan, Medicare Advantage or Medicare Part C normally covers all forms of health insurance coverage. Private insurance businesses that have been contracted by the CMS to provide a medicare plan as an alternative to the original health insurance plan provide it.
Medicare Part D
Medicare Part D is a prescription medication coverage option. Part D health insurance is available as a stand-alone plan from private insurance firms, with monthly rates varying from one to the next. Depending on the plan you're registered in, you'll split the cost of your prescription medicines.
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You get the same coverage as Original Medicare plus additional benefits from the Medicare Advantage insurance provider when you enroll in a Medicare Advantage plan.
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- Initial Enrollment Period – Most persons can enrol in Medicare Part A, Part B, Part C, and/or Part D for the first time within a seven-month period: three months before, three months during, and three months after they reach 65.
- Special Enrollment Period (SEP) – Certain life circumstances, including as moving or losing current coverage, may qualify you for coverage. You usually have two months to enrol, depending on your circumstances.
- Medicare Part C & D Annual Enrollment Period (AEP) – Every year, from October 15 to December 7, Existing Medicare beneficiaries can take advantage of this time to review and adjust their Medicare Advantage (Part C) and Medicare prescription medication plans (Part D). You cannot utilise AEP to enrol for the first time in Part A and/or Part B. The following year’s coverage begins on January 1st.
- Medicare General Enrollment Period – Every year, from January 1 to March 31, While the majority of individuals will receive Part B coverage when they join in Medicare, this period is allocated for those who did not enrol in Part B when they initially became eligible. Coverage begins on July 1st of the following year.
- Medicare Advantage Open Enrollment Period (OEP) – Every year, from January 1 to March 31, You can change to a different Medicare Advantage plan with or without medication coverage during this period, or move to Original Medicare and join a separate Medicare Prescription Drug plan. You cannot, however, go from Original Medicare to a Medicare Advantage plan, join a prescription drug plan while on Original Medicare, or change from one prescription drug plan to another prescription drug plan while on Original Medicare.