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Why should you care about Medicare taxes? Well, for one thing, they make Medicare possible. For another, if you’ve paid Medicare taxes for long enough, you might qualify for premium-free Medicare Part A.
According to the Internal Revenue Service (IRS), taxes withheld from your pay help pay for Medicare and Social Security benefits. If you’re self-employed, you generally still need to pay Medicare and Social Security taxes.
Payroll taxes cover most of the Medicare program’s costs, according to Social Security. Not all of the revenue from payroll taxes goes to Medicare, and not all Medicare costs come from these taxes.
According to Social Security, the Medicare tax and Social Security tax together are called the FICA (Federal Insurance Contributions Act). Here’s how the FICA tax generally breaks down in 2018:
This is made up of:
People with income above $200,000 might pay an “additional Medicare tax” of 0.9%, totaling 2.53% (1.45 + 0.9).
The Centers for Medicare & Medicaid Services (CMS) notes that there are two federal trust funds that pay for Medicare. One of them, the Hospital Insurance Trust Fund, uses Medicare taxes along with other income sources to pay for Medicare Part A (hospital insurance). Another trust fund, the Supplementary Medical Insurance Trust Fund, uses Medicare Part B and Part D premiums and funds authorized by Congress, along with money from other sources, to pay for Medicare Part B (medical insurance) benefits. Some of the money also goes to the Medicare Part D (prescription drug coverage) program.
eHealth's Medicare website is operated by eHealthInsurance Services, Inc., a licensed health insurance agency doing business as eHealth. The purpose of this site is the solicitation of insurance. Contact may be made by an insurance agent/producer or insurance company. eHealth and Medicare supplement insurance plans are not connected with or endorsed by the U.S. government or the federal Medicare program. We offer plans from a number of insurance companies.