How Is Medicare Tax Applied?
One of the federal taxes your employer is required to withhold from your paycheck is the Medicare tax. This tax helps to pay for the costs of the Medicare program, which is a public health insurance program. The Medicare tax you pay gives you the right to receive Medicare Part A benefits without any costs.
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Medicare Tax
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Medicare tax is the federal tax you must pay, and it is applied to your monthly (or biweekly) paycheck. Your employer is required by the IRS to withhold this tax from every paycheck you receive. This tax applies to the wages of any employee who works inside the United States, regardless of citizenship or residence. You must pay Medicare tax even if you do not expect to qualify for benefits. This tax also applies to your employer. In some circumstances, citizens who work outside the United States also must pay Medicare tax. In these cases, the employer should be able to tell if Medicare taxes apply.
Percentage Applied for Medicare Tax
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As of 2011, the rate for Medicare tax remains the same compared to 2010. If you are an employee, a 1.45 percent tax rate applies to your wage. If you are an employer, you must pay a 1.45 percent tax rate for each employee's wage. As an employee, you must fill out form W-4 with your personal information. You must pay Medicare tax no matter the level of income you earn since this tax applies to all incomes. To know how much to withhold (or how much your employer withholds from you), you must multiply your wages by the tax rate for Medicare and subtract this amount from your wage.
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Self-employement Tax
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Individuals who are self-employed also must pay Medicare tax (and Social Security tax). This tax is similar to the Medicare tax applied to normal employees. If you are a self-employed individual, unlike a normal employee whose taxes are withheld by employers, you are responsible for figuring out your own Medicare tax and paying it. To do so, you need to use Form 1040, Schedule SE. As of 2011, the rate for self-employed Medicare tax is 2.9 percent. As a self-employed individual, you can deduct half of your SE tax out of your income tax.
Refund for Error
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If you had Medicare tax withheld in error, you can contact your employer (or the employer responsible for the mistake) for a refund. If your employer does not give you a full refund or you are unable to contact him, you can file Form 843 (Claim for Refund and Request for Abatement) and claim a refund from the IRS. You must include a copy of your Form W-2, INS Form I-94, INS Form I-538 (if applicable), and a statement from your employer indicating the amount of refund he has given you.
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