Many Americans are confuse about their health care costs and how they should be taking care of themselves. Although there are many different options for health insurance, affordability is one of the biggest issues most people face. Medicare taxes are taxes you will be responsible to pay when you enroll in Medicare. The tax is calculate base on your income, and is determine by the amount of money you earn and spend. If you are self-employed, this may not be an issue. But if you’re part of a family, your boss, or either your spouse or children, you will have to pay taxes on your earnings.
Employers must withhold Social Security and Medicare taxes; these are known as FICA (Federal Insurance Contributions Act) taxes. The FICA tax actually consists of two taxes: a 6.2 percent Social Security tax and a 1.45 percent Medicare tax. Medicare taxes are calculate as a percentage of pre-tax household income. Income for most people is calculate on a monthly basis. Inflation is add to the income of each person in the household. If a person’s income is $80,000 per year and increases by $1,000 in a year, then the person would owe Medicare taxes of $10,000.
The U.S. spends about $750 billion a year on Medicare, the federal health insurance program for the elderly, disabled and their families. This totals to $723 billion each year, which is pretty impressive. The federal government has a few ways that they spend their Medicare dollars. The most common is through Medicare Advantage plans offer by private insurers, but there is also direct Medicare payments and Medicaid spending. Like Social Security benefits, the Medicare hospital insurance program is fund largely by employment taxes. Medicare HI taxes began in 1966, at a modest rate of 0.7%. Employers and employees were responsible for paying 0.35% each. Employees paid their share when their employers deducted it from their paychecks. Since 1966, the Medicare HI tax rate has increased, although it is still below the Social Security tax rate, also known as OASDI, for old-age, survivors, and disability insurance.
How much is withheld for Medicare taxes?
The Medicare tax rate is 1.45% for individuals with Medicare taxable wages up to $200,000. Employees and employers each pay 1.45%, for a total of 2.9%. Unlike Social Security taxes, there is no limit on the income subject to Medicare taxes.
Medicare Taxable Wages
You may have certain earnings that are excluded from your salary before Medicare tax deductions are calculated. For example, if you participate in your employer’s group health insurance program, you can choose to have your premiums deducted before the calculation. Generally, your contributions to a dependent care assistance program also aren’t considered taxable wages for Medicare tax.
There is no limit on income subject to Medicare tax. However, the Affordable Care Act (ACA) added an additional tax to Medicare for people with high incomes. This tax is known as the additional Medicare tax. Since January 2013, anyone with earned income of more than $200,000 has paid an additional 0.9% in Medicare taxes beyond the standard 1.45%. That 0.9% is paid entirely by the employee, not divided between the employer and the employee.
Where do my Medicare tax dollars go?
Medicare isn’t just an insurance program that helps seniors. It’s also a huge government bureaucracy that, over the past several decades, has grown massively to become one of the biggest and most expensive budgets in the United States. In fact, Medicare’s budget for 2015 was more than $1.2 trillion, which meant that it spent over $76 billion dollars just on health care. So why are so many people so angry that the government spends so much money on healthcare?
Medicare is the Federal health insurance program for people 65 years of age and older, certain younger people with disabilities, and people with End-Stage Renal Disease (permanent kidney failure requiring dialysis or a transplant, sometimes called ESRD).
The different parts of Medicare help cover specific services:
- Medicare Part A (hospital insurance)
- Medical insurance is Medicare Part B
- Medicare Part C (Medicare Advantage Plans)
- Medicare Part D (prescription drug coverage)