American workers have taxes for Social Security and Medicare withheld from their paychecks. Together, these two income taxes are known as the Federal Insurance Contributions Act (FICA) tax.
The 2023 Medicare tax rate is 2.9%. Typically, you’re responsible for paying half of this total Medicare tax amount (1.45%) and your employer is responsible for the other 1.45%. Your Medicare tax is deducted automatically from your paychecks.
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The Medicare tax that is withheld from your paychecks helps fund health care costs for people enrolled in Medicare.
Medicare is financed through two trust fund accounts held by the United States Treasury:
The funds in these trusts can only be used for Medicare.
The Hospital Insurance Trust is largely funded by Medicare taxes paid by employees and employers, but is also funded by:
The Hospital Insurance Trust Fund pays for Medicare Part A benefits and Medicare Program administration costs. It also pays for Medicare administration costs and fighting Medicare fraud and abuse.
This trust is largely funded by the premiums paid by people enrolled in Medicare Part B (medical insurance) and Medicare Part D (Medicare prescription drug plans), but it is also funded by:
The Supplementary Medical Insurance Trust Fund pays for:
The Affordable Care Act (ACA) was passed in 2010 to help make health insurance available to more Americans.
To aid in this effort, the ACA added an additional Medicare tax for high income earners. This raised the tax from 1.45 percent to 2.34 percent for people with an earned annual income of more than $200,000 ($250,000 for married couples filing jointly).1
The additional tax (0.9% in 2022) is the sole financial responsibility of the employee and is not split between the employee and employer. Your employer is required to withhold Additional Medicare Tax amounts for you when you enter this category.
If you make more than $200,000 per year in 2023 as an individual filer, the 0.9 percent surtax only applies to the amount you make that is over $200,000. For instance, if you make $300,000 per year, you and your employer each pay the standard 1.45 percent Medicare tax for the first $200,000 you make, and you pay the additional 0.9 percent Medicare tax on the $100,000 that is left.
Even if you are self-employed, the 2.9% Medicare tax applies.
Typically, people who are self-employed pay a self-employment tax of 15.3% total.2
The self-employed tax consists of two parts:
You can deduct the employer-equivalent portion of your self-employment tax in figuring your adjusted gross income. If you’re unsure of how to do this, a tax professional may be able to help.
If you’d like more information about Medicare, including your Medicare enrollment options, a licensed insurance agent can help.
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Christian Worstell is a senior Medicare and health insurance writer with MedicareAdvantage.com. He is also a licensed health insurance agent. Christian is well-known in the insurance industry for the thousands of educational articles he’s written, helping Americans better understand their health insurance and Medicare coverage.
Christian’s work as a Medicare expert has appeared in several top-tier and trade news outlets including Forbes, MarketWatch, WebMD and Yahoo! Finance.
Christian has written hundreds of articles for MedicareAvantage.com that teach Medicare beneficiaries the best practices for navigating Medicare. His articles are read by thousands of older Americans each month. By better understanding their health care coverage, readers may hopefully learn how to limit their out-of-pocket Medicare spending and access quality medical care.
Christian’s passion for his role stems from his desire to make a difference in the senior community. He strongly believes that the more beneficiaries know about their Medicare coverage, the better their overall health and wellness is as a result.
A current resident of Raleigh, Christian is a graduate of Shippensburg University with a bachelor’s degree in journalism.
If you’re a member of the media looking to connect with Christian, please don’t hesitate to email our public relations team at Mike@tzhealthmedia.com.
1 Internal Revenue Service. Questions and Answers for the Additional Medicare Tax. (Jan. 18, 2022). https://www.irs.gov/businesses/small-businesses-self-employed/questions-and-answers-for-the-additional-medicare-tax.
2 Internal Revenue Service. Self-Employment Tax (Social Security and Medicare Taxes. (Aug. 25, 2022). www.irs.gov/businesses/small-businesses-self-employed/self-employment-tax-social-security-and-medicare-taxes.
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