What Is Medicare Tax?
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.
What’s the Medicare tax?
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.
How much is the Medicare tax?
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:
- Total FICA tax rate for employers and employees: 7.65% (each) of your gross wages.
This is made up of:
- Social Security tax: 6.2%
- Medicare tax: 1.45%
People with income above $200,000 might pay an “additional Medicare tax” of 0.9%, totaling 2.53% (1.45 + 0.9).
Does the Medicare tax pay for the entire Medicare program?
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.