Kentucky Medicare Withholding

Kentucky workers pay the same Medicare taxes as everyone else.

Medicare is a federal program that provides health insurance to citizens and permanent residents 65 years and older. The government funds Medicare through employee payroll contributions. Although federal Medicaid programs for the financially disadvantaged are administrated by state agencies, Medicare is centrally managed by the Center for Medicare and Medicaid Services (CMS). Accordingly, Medicare withholdings are the same for Kentucky workers as they are for workers throughout the nation.

FICA

The Federal Insurance Contributions Act (FICA) mandates payroll tax withholding for Medicare and Social Security. At the time of publication employees pay 4.2 percent of their earnings in total FICA withholdings, although only 1.65 percent is for Medicare. This is a temporary reduction for 2011 from the 6.2 percent FICA taxes in other years as part of a federal economic stimulus plan. Payroll tax rates do not differ based on income or pay rate and there is no limit to the amount of annual income taxed for Medicare. Social Security taxes are levied against the first $106,800 of a person's annual earnings.

Employer Contributions

FICA requires employers to contribute to workers' government insurance funds. Employers pay 6.25 percent of an employee's earnings for Medicare, Social Security and unemployment insurance. Companies remit these funds through quarterly payroll taxes managed by their state. Kentucky businesses pay the Kentucky Department of Revenue, which in turn remits Medicare funds to CMS.

Options

Kentucky residents have the option to reduce their amount of payroll withholding for federal and state tax purposes. Thus, they do not have to set aside funds to pay taxes through their payroll. However, FICA does not make payment of Medicare and Social Security optional for employed workers.

Business Owners

Business owners and independent contractors must pay self-employment taxes to make up for their lack of FICA contributions. Because all citizens and residents are eligible for Medicare, the federal government does not permit the self-employed to avoid Medicare contributions. Self-employment taxes are calculated and collected either through quarterly estimated tax payments or through annual income tax filings, depending on the business type and arrangements with the Internal Revenue Service.

References

• Kentucky Department of Revenue: Withholding Tax
• Kentucky Department of Finance: Cafeteria Plans (PDF)
• Suburban Computer: 2011 Federal Withholding Tax Table
• IRS: Social Security and Medicare Withholding
• AllLaw.com: What Are Payroll Taxes?; Rebecca Berlin
• CNN Money; What's FICA Again?
• New York Times; Putting That Tax Holiday to Work; Rob Liever; December 24, 2010