How the Medicare Tax Rate is Changing
The Medicare tax rate for 2019 is something the IRS determines, and the amount is subject to change. These taxes are only applicable to the income you earn, not a property or inheritance income.
Medicare taxes are a payroll tax; generally, an employer and an employee both contribute to the tax. However, in situations of self-employment, you may be responsible for the full amount since you’re both the employer and the employee.
There is not a wage base limit for Medicare taxes, all wages are subject to the tax.
Medicare Tax Rate
The Medicare Tax rate for 2019 is 1.45%. However, the Federal Insurance Contributions Act (FICA) tax rate is the combination of the SSA tax rate of 6.2% and the Medicare Tax rate; the total FICA will be 7.65% for 2019.
The maximum SSA tax amount for employees and employers is $8, 239.80 in 2019. For those relying on self-employment, the maximum SSA tax is $16, 479.60 for 2019.
All wages over $200,000 in 2019 will pay an extra 0.9% Medicare tax withholding on employees’ wages, employers don’t pay this tax. The self-employment tax rate is slightly higher at 15.3%; this is the combination of the 12.4% SSA tax rate and the 2.9% Medicare tax rate.
Annually the IRS makes changes to tax brackets. Well, we have the breakdown of taxes due in April 2020.
These are income tax brackets for federal income taxes, not Medicare tax rates. These are the rates that reflect the current 2019 tax year and these numbers relate to the tax return you’re going to file in 2020.
Before you become overwhelmed with these numbers let’s go over how your income tax gets broken down. For a single filer making $85,000 a year, you don’t pay 24% on the whole $85,000.
Thankfully it goes more like this:
- $9,700 of your income has a 10% tax
- $29,775 has a 12% tax
- $44,724 has a 22% tax
- $801 has a 24% tax
Of course, as you can see from the chart above, these numbers can change depending on filing status. These numbers only apply to federal IRS income tax brackets; contact your state to find out how your income is locally taxed.
Tax deductions can reduce the amount of income your subject to receive a tax. A tax credit can reduce the amount of tax you owe, not change the tax bracket you fall into.
Did you know Medicare premiums are tax-deductible!
Social Security Tax Limit
In 2019, there is no requirement to pay Social Security taxes on the income you earn over $132,900. This is the Social Security wage base.
So, no matter how much money you earn, you’ll never pay more than $8,240 in Social Security taxes. However, this wage base can increase annually.
The Medicare tax you must pay on all income you earn. Also, if your income is over $200,000 ($250,000 for couples filing jointly) the Medicare tax rates rise to 2.35%.
Social Security Tax Rate
The Social Security Tax rate is 6.20% of your payroll that goes towards funding the program. Those that are self-employed have to pay double, though with proper deductions you could cut that in half.
Essentially you pay into the program while you work and when you retire the program pays you. Although, many people wonder how long Social Security will last.
Additional Medicare Tax Rate
The Affordable Care Act subjects high wage earners to pay an additional Medicare payroll tax of 0.9% on earned income. All US employees must pay the Medicare tax; this goes for everyone regardless of citizenship or residency status of the employer or the employee.
Single filers with an income of over $200,000 will be subject to an additional Medicare Tax. Married individuals filing separately will pay an additional tax if income is over $125,000. However, if married and filing jointly, you’re subject to a tax when income combines to reach over $250,000.
This additional Medicare tax rate is a Medicare surtax totaling 2.35% (1.45% + 0.9%). This will be added to the Social Security tax rate and your state income taxes.
Understanding the Medicare Tax
The percentage of income that goes towards your Medicare tax is 1.45% and employers match the rate employees pay. However, self-employed individuals pay the full 2.9%.
Medicare taxes are calculated on an employee’s gross earnings minus any non-taxable items, without a maximum on wages.
Since 2013, you must pay a 3.8% Medicare tax rate on all or some of your net investment income when the total amount exceeds the income thresholds. This is the Net Investment Income Tax; ironically, this goes into the government’s General Fund and not into Medicare.
The bottom line is many people only pay that 2.9% flat tax rate; however, high-income earners with investment income could end up paying more than this percentage.
Do I Have to Pay Medicare Taxes if I am on Medicare
Laws require you to pay Medicare taxes on all earnings for as long as your an employee. So, if you work and receive Medicare, you’ll still pay Medicare taxes.
Also, you must pay SSA taxes and FICA taxes on all earned income no matter your age.
Save Money with a Medicare Supplement Policy
Taxes can be a pain, but healthcare coverage doesn’t have to be! Medicare Supplement policies give you a set premium, in exchange for low out of pocket costs.
These Medigap policies give you the freedom to see any doctor in the United States that accepts Medicare. Also, when Medicare approves a service, the Medigap company must cover that service.
To lower your out of pocket costs and have predictable healthcare expenses, call one of our licensed agents at the number above. You can fill out an online rate comparison form and one of our Medicare experts will be in touch with you later!