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Medicare Tax Questions

Medicare Tax Questions – Most Commonly Asked Questions

What is the Medicare tax?
Your employer automatically withholds the Medicare tax from your paycheck in order to help cover the costs of the country’s Medicare program.
The tax comprises one part of the Federal Insurance Contributions Act (FICA). Employers are required by law to collect both Medicare and Social Security tax and submit the money to the Internal Revenue Service (IRS) on a quarterly basis. The money is then placed into a government trust fund to be used to help cover the medical expenses of the elderly and qualified citizens.
The total FICA of an employee is 7.65 percent of your gross earnings for that pay period. Of the 7.65 percent, 1.45 percent goes toward their Medicare contribution. The remaining 6.2 percent goes towards the Social Security program. Employers must match the Medicare and Social Security contributions of their employees.
Many seniors living on a fixed income are not able to afford private medical coverage. Therefore, without Medicare, many would not be able to receive the medical attention they need. Instead, people contribute a small amount throughout their working lives, providing them with complete medical coverage for less than $100 a month when they retire.
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If I am self-employed, how much do I have to pay in Medicare taxes?
You must pay twice the amount of Medicare tax if you are self-employed because you don’t have an employer to match the funds. Therefore, you will owe 15.30 percent in FICA taxes, with 2.9 percent going toward your Medicare contribution. However, you are also able to take a business deduction when filing your income taxes, covering half of what you must pay. Consult an accountant for more specifics about your situation.
When am I eligible to begin receiving Medicare?
Typically, people become eligible for Medicare when they turn 65 years of age. Then, Social Security payments are reduced by the amount of their Medicare premiums. That being said, you may become eligible for Medicare coverage before the age of 65 under certain circumstances.
Are healthcare deductions exempt from the Medicare tax?
Payments made for health insurance premiums are usually exempt from income, Social Security and Medicare taxes.
What happens if an employer did not withhold enough Medicare tax from an employee?
When this occurs, the employer is typically responsible for making up for the underpayment. The reimbursement is a matter that must be settled between the employee and their employer. If the employee agrees, the employer may take an additional amount out of future pay for reimbursement. Further information on how to handle overpayments and underpayments can be viewed at the IRS website.
What is the Medicare tax rate?
For most people, 1.45 percent of their total wages are taken out for Medicare taxes. While there is a cap on how much Social Security tax a person must pay, there is no ceiling to the wage limit for the Medicare tax.
If an employee is exempt from paying Social Security and Medicare taxes, are they responsible for telling their employer?
As a general rule, it is the responsibility of the employer to determine if an employee is exempt from FICA taxes. However, if an employee knows he or she qualifies for the exemption, they should inform their employer and provide any necessary supporting documentation in order to benefit from the exemption.
Is an exempt employee eligible for a government refund if an employer deducts FICA taxes from their paycheck?
If FICA taxes are improperly withheld, it is the responsibility of the employer to correct the matter and provide the employee with corrected forms. While it is possible for an employee to receive a government refund, this only takes place when an individual works for more than one employer, and the total FICA taxes paid were applied to wages exceeding the $118,500 limit. Otherwise, it is an employer’s responsibility to issue a refund.
What percentage of a person’s income is withheld from their paycheck for Medicare and Social Security taxes?
Employees have a total of 7.65 percent of their pre-tax income withheld for FICA taxes, of which 6.2 percent goes toward Social Security and 1.45 percent is for Medicare hospital benefits. Although there is an earnings cap of $118,500 on Social Security withholdings in 2016, there is no earnings cap on the 1.45 percent Medicare contribution.
Employers must make matching contributions from company funds, making a total contribution of 15.3 percent on their employee’s behalf for the first $118,500 of their salary. If you earn under $132,900 in 2019, your total contribution can be easily calculated by multiplying your pre-tax salary by .0765. For example, someone who earned $35,000 this year would have contributed $2,677.50 toward their future Medicare and Social Security benefits. And, their company would match their contribution, bringing it to $5,355 for the year.
Can I deduct Medicare taxes from my tax return?
No, unfortunately this is not an option.
What does the Medicare tax pay for?
The Medicare tax is automatically deducted from your paycheck in order to pay for your Medicare Part A health insurance coverage. This allows you to benefit from it when you turn 65. Medicare Part A represents the hospital portion of Medicare coverage. Upon turning 65, you will begin paying for Medicare Part B, which is automatically taken out of your monthly Social Security benefit to cover visits to your physician, specialists and so on.
What is the Additional Medicare Tax?
The Additional Medicare Tax only applies to individuals with wages, self-employment income and other forms of compensation that exceed specific thresholds.
What is the Additional Medicare Tax rate?
The current rate for the Additional Medicare Tax is 0.9 percent.
When am I liable for paying the Additional Medicare Tax?
You are liable for paying the Additional Medicare Tax if your wages, self-employment income or other compensation exceeds the following thresholds:

  • Single – $200,000
  • Married and filing separately – $125,000
  • Married and filing jointly – $250,000
  • Head of household or widower with a qualifying child or person – $200,000

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Is Additional Medicare Tax withheld from an employee’s wages?
Employers must withhold Additional Medicare Tax from the wages of employees in excess of $200,000 per calendar year; regardless of their filing status or wages they may have received from another employer. Depending on their filing status, wages, self-employment and other compensation, a person may owe more than their employer withholds from their paycheck. If this occurs, the individual should use Form W-4 to request additional income tax withholding and make estimated tax payments.
Can I request additional withholding specifically to cover Additional Medicare Tax?
No, this is not an option. However, if you anticipate being liable for Additional Medicare Tax, you may request your employer withhold additional income tax. You can apply additional income tax withholding against the taxes shown on your income tax return, including your Additional Medicare Tax liability.
Without Medicare, countless seniors in the U.S. would not receive the medical attention they need due to the high cost of today’s medical insurance premiums. Medicare allows them to enjoy premiums under $100 by contributing a small amount throughout their working lives. The above questions are the most commonly asked questions regarding Medicare Tax, but there are many more answered by tax experts every day.