What Is the Medicare Tax Rate?

Healthcare makes up the biggest part of the federal government’s budget — more than one-quarter of the total budget goes to four health insurance programs, including Medicare. In 2022, the government spent $944.3 billion on Medicare, which alone accounts for 12% of the government’s national health expenditure. The government collects the money to pay for these programs from tax dollars, which means you’re paying for it. Your contribution is based on the Medicare tax rate.

Check Out: What To Do If You Owe Back Taxes to the IRS

What Is Medicare?

Medicare is a health insurance program for people who are 65 or older, younger people with certain disabilities, and people who have permanent kidney failure requiring dialysis or a transplant. Around 66 million people fall into one of these categories and were enrolled in Medicare in March of 2023. It pays for several healthcare services, such as hospital stays, doctor visits, medical supplies and prescription drugs.

What Is the Medicare Tax Rate?

If you look at your pay stub, you’ll notice a portion of your earnings withheld to satisfy a tax requirement established by the Federal Insurance Contributions Act. Under FICA, employees and employers make a contribution — in the form of a tax on their income — to fund Social Security and Medicare programs. For each pay period, employees and employers are both taxed 1.45% for Medicare, and the total FICA tax is 2.9%.

What Is the 0.9% Medicare Tax?

Under the Affordable Care Act in 2013, an additional tax for taxpayers in the higher federal tax brackets was added to fund Medicare. The additional Medicare tax rate is 0.9%. But this is not mandatory unless an “individual’s wages, compensation, or self-employment income (together with that of his or her spouse if filing a joint return) exceed the threshold amount for the individual’s filing status,” according to the IRS. See below if you meet the requirements for the additional Medicare tax:

• Married filing jointly: $250,000

• Married filing separately: $125,000

• Single: $200,000

• Head of household (with qualifying person): $200,000

• Qualifying widow(er) with dependent child: $200,000

Who Pays the 3.8% Medicare Tax?

Some people who earn money through investments may need to pay the net investment income tax. This is an additional 3.8% tax (separate from the 0.9% additional Medicare tax that applies to high-wage earners and federal capital gains tax) on income earned through interest, capital gains, rental income, dividends, nonqualified annuities and royalty income. It applies to taxpayers who had a modified adjusted gross income greater than the following amounts:

• Married filing jointly: $250,000

• Married filing separately: $125,000

• Single or head of household: $200,000

• Qualifying widow(er) with a child: $250,000

What Medicare Pays For

Medicare offers health coverage for people with disabilities and aging Americans. Specifically, the coverage is broken up into different parts and plans, each designed to meet the needs of recipients while protecting the budget.

Original Medicare includes Part A and Part B. About half of Medicare recipients are enrolled in Original Medicare.

Medicare Part A

Medicare Part A covers hospital insurance, which includes inpatient hospital stays, care in a skilled nursing facility, hospice care and home healthcare. For Medicare Part A, you usually don’t have to pay a monthly premium if you meet certain requirements.

Medicare Part B

Medicare Part B is medical insurance that mostly covers outpatient care. For mental health services, it also covers inpatient and partial hospitalization. Otherwise, Part B covers necessary outpatient medical services and supplies, preventative healthcare, ambulance service and limited outpatient prescription medications.

Medicare Part C

Medicare Part C, also known as Medicare Advantage Plans, is a selection of Medicare-approved plans provided by private companies. They come in the form of HMOs and PPOs, depending on which options the company offers, and they must cover all services that Original Medicare covers. And like true HMOs and PPOs, there are premium costs. However, these plans are beneficial because unlike Part A and Part B, they often offer specialized coverage in vision, hearing and dental.

Medicare Part D

Medicare Part D provides prescription drug coverage.

Where Does Funding for Medicare Come From?

Funding for Medicare comes from two sources, the Hospital Insurance Trust Fund and the Supplementary Medical Insurance Trust Fund. Money in the HI trust fund comes from payroll taxes, income taxes, Medicare Part A premiums and interest earned on the trust fund balance. Congress authorizes funding for the SMI trust fund, which also receives money from Medicare Part B and Part D premiums and interest earnings.

FAQ

• Can you write off Medicare taxes?

  • You cannot avoid paying your share of the FICA tax that helps pay for Medicare, but some Medicare-related expenses may qualify as a tax write-off. If you itemize deductions, you can deduct medical expenses that exceed 7.5% of your adjusted gross income. This includes Medicare premiums.

• How long does it take to get a tax refund?

  • Factors like when and how you submit your tax refund determine how long it takes to get a tax refund. The IRS sends most refunds within 21 calendar days, but you will likely need to wait up to four weeks if you mailed in a physical copy of your return. If the IRS finds an error or decides it needs more time to review your return, it may delay processing the return and issuing a refund.

Taylor Bell and Daria Uhlig contributed to the reporting for this article. 

This article originally appeared on GOBankingRates.com: What Is the Medicare Tax Rate?