What is a Medicare Tax?

Tricia Christensen
Tricia Christensen

Medicare tax is part of the Federal Insurance Contributions Act (FICA) tax levied by the United States government to pay for the Medicare program. This program assures participants access to some degree of medical care when they either reach the age of 65 or qualify by disabilities in advance of this age. The program isn’t completely free, and those eligible pay a certain amount per month to get access to a considerable amount of medical care at discounted rates. The tax is paid by almost all workers in the US and is collected at the same time that social security tax is collected.

Man climbing a rope
Man climbing a rope

For people who are regular employees, Medicare tax is automatically removed from paychecks. The government presently levies a 2.9% tax, though this can change, but employers must pay half of that. This changes if people are independent contractors. They are then responsible for paying the full tax, but are able to write off some of the amount paid each year. Usually they can declare half of FICA payments as tax deductible.

The social security tax, which makes up most of the FICA tax has what is called an upper limit. After a certain amount of income is made per year, no more social security taxes are removed from paychecks. The same is not true for the Medicare tax. There is no upper limit and people will continue to have this 1.45% of their salary removed by employers no matter how much they make.

For independent contractors this distinction can be important. If they reach the upper limit of social security tax, they still have to deduct 2.9% of all earnings for Medicare tax. While contributing to social security at top tier levels may mean retiring with extra social security payments if people wait until full retirement age, contributing additional amounts in Medicare tax doesn’t qualify people for additional benefits. This factor has been occasionally criticized as socialist in nature because some people pay more than others.

Perhaps more concerning are those who haven’t worked long enough to qualify through paying Medicare tax or who have not been married to someone who qualifies or qualified for Medicare. In order to get health care after a certain point, these people may need to obtain Medicaid instead. Though Medicare costs some money for participation, most would argue it is the better system, allowing people to have more choice in the doctors they see. It’s also the case that trying to obtain private insurance gets more difficult as people age. The dual system provided by the government attempts to make certain people who are older do not do without medical care, but it has its imperfections, like most large-scale systems.

Paying Medicare tax may not make people less obligated to pay state taxes for operating state-run health systems. There are a few states and cities that have attempted universal health care models. These may be funded through income or property tax, but do not exempt individuals from Medicare taxes.

Tricia Christensen
Tricia Christensen

Tricia has a Literature degree from Sonoma State University and has been a frequent wiseGEEK contributor for many years. She is especially passionate about reading and writing, although her other interests include medicine, art, film, history, politics, ethics, and religion. Tricia lives in Northern California and is currently working on her first novel.

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