Wage Limits for Medicare Taxes

All wages earned in the U.S. may be subject to Medicare taxes.

Medicare is a government-run program that provides senior citizens and other individuals who have a disability low-cost medical care insurance and benefits. The government imposes a tax on earned income as a means to fund this social program. All earned income is subject to this tax.

Wage Earners

Wage earners are those who receive a W-2 form from their employer. Wage earners pay Medicare taxes during each pay period at a rate of 1.45 percent of their earned income. Employers are also responsible for 1.45 percent of all the wages that they pay to their employees. Between an employee and employer 2.9 percent of an employees wages are paid to the government to fund the Medicare program. There is no cap on the income subject to Medicare taxes for wage earners.

Self-Employed

Those who are considered self-employed because they either own their own business or are independent contractors are responsible for paying 2.9 percent of their reported wages to the government. They are responsible for paying both the employee and employer portions of all reported wages. There is a cap on the income that Medicare tax is levied against for those who are self-employed.

Eligiblity

Eligibility is generally available to those who are over 65 and citizens of the U.S. You must also have earned 40 work credits. You can earn four credits per year, and you earn one credit for each of the first $1,000 earned in a year. This means that as long as you made more than $4,000 in a calendar year for 10 years of your life, you will be eligible for Medicare at the age of 65. A citizen can also become eligible if the become disabled and meet specific qualifications.

Premiums Paid When Eligible

Those who have higher annual incomes will be responsible for higher monthly premiums for their insurance. Monthly premiums for the current year are based on prior year tax return. According to the Medicare website, a person who files jointly with their spouse and has under $170,000 of income paid $110.50 monthly in 2010 for Medicare Part B. A person who files jointly with their spouse and has income over $428,000 will pay $353.60 each month in Medicare part B Premiums.

References

• Medicare: 2010 Medicare Premiums
• Medicare: Eligibility Requirements
• IRS: Self Employment Taxes
• Social Security Admistration: Quick Fact Sheet 2010 update