Posted on August 25, 2022 by Larry Johnson
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Posted on August 25, 2022 by Larry Johnson
The Medicare tax covers Medicare plans for seniors. A quality Medicare plan can be a huge help toward covering medical expenses when you need it the most. Call our licensed agents today at (800) 950-0608 to find Medicare plans in your area that meet your needs.
Medicare taxes are always a hot (and hotly-debated) topic for most Americans. In fact, a search for Medicare on any platform will typically bring up a number of questions or phrases related to Medicare taxes. Some of the most common ones you’ll find include:
To answer the majority of these questions, as well as others you may have, we’ll start at the beginning. What is Medicare tax? Let’s find out.
In order to discuss this tax, and why it is important, we must first answer two very important questions. What is Medicare tax? What does it pay for?
Regardless of your type of employment, whether you work for a company or you’re self-employed, you’re required to pay taxes that help fund the Social Security and Medicare programs. For independent contractors and those who are self-employed, this is known as the self-employment tax. For regular employees, it’s known as the FICA tax.
FICA tax withholding accounts for around 8.55 percent of the total tax amount withheld from your check each pay period*. Most Americans pay 1.45 percent of their income into the Medicare program, and some pay a tax rate of around 2.35 percent each pay period. This combines both the regular Medicare employee tax, and an additional Medicare tax**. Here’s how the tax rates break down:
The remaining 6.2 percent of FICA taxes paid by employees and employers is a tax that pays into the Social Security program.
*Americans who are self-employed or work as independent contractors do not have FICA taxes withheld. They still must pay the taxes that make up FICA – Social Security and Medicare taxes – as a self-employment tax
**Only taxpayers earning over $200,000 per year are subject to the Additional Medicare tax.
***Employers do not contribute to the Additional Medicare tax.
In addition to the regular Medicare employee tax, high earners currently pay what is known as the additional Medicare tax. This tax went into effect in 2013, and is designed to help fund features of the Affordable Care Act.
If you’re a single taxpayer making over $200,000 per year, or you’re a married couple making over $250,000 per year, you’ll be subject to the additional Medicare tax. You’ll pay 2.35 percent of regular employee wages, while self-employed taxpayers will pay 3.8 percent.
In the near future, single taxpayers making over $400,000 per year or married couples making over $500,000 per year could be paying as much as 3.8 percent income tax for Medicare, as Congress is currently mulling a tax hike for high earners.
No one likes having to pay extra taxes, but they are a necessary evil. Taxpayer dollars fund the programs you’ll need to draw income and have access to affordable healthcare when you reach your senior years. Without them, there would be no funding for a crucial program that helps seniors get the healthcare and medical attention they need.
Essentially, all federal government programs are paid for by the American taxpayer. Social Security taxes help fund retirement income you’ll need once you’ve retired from gainful employment. The FICA tax makes sure that you can cover medical and living expenses in your senior years.
In essence, by paying the FICA tax, you’re investing in your own future. Not only are you giving back to yourself by ensuring that you have an income in your golden years, you’re also making sure you can sufficiently cover your future medical expenses.
While the FICA tax seems complex, it really isn’t. The FICA tax is a major investment in your future health and wellness as a senior citizen.
As the costs of medical treatments and prescription drugs rise, maintaining the Medicare program is a must for seniors on a fixed income who rely on it to help cover crucial medical costs. By paying these taxes, we’re making sure that millions of seniors enrolled in the program receive the help they need to pay their medical bills. Remember, in the future, you’ll be better off for having paid dividends into the Medicare program.