How do Medicare payroll taxes affect my benefits?

What do I pay in Medicare payroll taxes?

As an employee, you pay 6.2 percent of your applicable earnings in Social Security taxes and 1.45 percent on all earnings in Medicare taxes. Your employer contributes an equal amount, for a total of 12.4 percent for Social Security and 2.9 percent for Medicare.

Social Security taxes are assessed only up to a certain income level, which is $160,200 in 2023 and $168,600 in 2024, but Medicare taxes are assessed on your total income. If you earn $50,000 a year, you’ll pay $725 annually in Medicare taxes.

You continue to pay Medicare taxes as long as you’re working, even if you’re receiving Medicare benefits.

Special rules for the self-employed: If you’re self-employed, you’ll pay both the employer’s and the employee’s share of Social Security and Medicare taxes; however, you can deduct half of what you pay when you file your income taxes.

Extra taxes for high earners: If you file federal taxes as a single earner and your income is more than $200,000, you must pay an extra 0.9 percent in Medicare taxes on your income above that threshold. The same applies to those who are married, filing jointly and making more than $250,000.

Who doesn’t pay Medicare taxes?

Federal employees were exempt from paying FICA taxes until January 1983. They started paying the Medicare portion of the FICA tax after that date. Federal employees as of Jan. 1, 1983, received credit toward Medicare eligibility for quarters that they worked before that date without paying Medicare taxes. 

Some federal, state and local government employees still pay only the Medicare portion of the FICA tax but not the Social Security portion. They can use quarters of coverage they earn to meet requirements for premium-free Part A, but not for monthly Social Security benefits.

Members of certain religious groups may be exempt from paying Social Security taxes if they’re opposed to public insurance for religious reasons. But they must waive their rights to receive Social Security and Medicare benefits.

Keep in mind

If you didn’t pay Medicare payroll taxes for long enough to qualify for premium-free Part A, you may be able to get help with the premiums from one of the Medicare Savings Programs in your state. Eligibility is based on your income and assets, depending on your state. For example, the Qualified Medicare Beneficiary program helps pay the premiums, deductibles, coinsurance and copayments for parts A and B.

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