Medicare Tax
* * *
The Medicare tax is the amount withheld by your employer from your paycheck that helps cover the cost of running the Medicare program. It is part of FICA that your employer is required to collect and send to the Internal Revenue Service quarterly, who then puts it into a government trust fund. Your total FICA is 7.65 percent. Of that, 1.45 percent represents your contribution to Medicare, with the balance used for the Social Security program. In addition, your employer pays a like amount for Social Security and Medicare.
Medicare is a national social insurance program, administered by the U.S. federal government, that guarantees access to health insurance for Americans ages 65 and older and younger people with disabilities as well as people with end stage renal disease. As a social insurance program, Medicare spreads the financial risk associated with illness across society to protect everyone, and thus has a somewhat different social role from private insurers, which must manage their risk portfolio to guarantee their own solvency.
Overview of Medicare Tax
History
President Harry Truman felt that the United States should provide cost-effective medical coverage to senior citizens. For 20 years, it was debated in Congress before it was signed into law as part of Lyndon Johnson's "Great Society." Since then, the costs of the Medicare program have increased as have both the rates and the amount of salary one makes that is subject to the tax.
Significance
With the advancements of medical cures have come startling increases in the premiums of private health care insurance. Without Medicare coverage, many seniors would have to do without medical attention because of the cost. Instead, they have been paying a small amount throughout their working lives, which now makes it possible for a monthly premium of less than $100 for coverage.
Considerations
You will pay twice the amount of tax than an employee if you are self-employed. That means you will pay total FICA taxes of 15.30 percent, with 2.9 percent representing your contribution to the Medicare program. Of course, you will be able to take a business deduction on your income tax for one-half of all you pay.
Time Frame
In most cases, you will become eligible for Medicare coverage when you are 65 years old. At that point, if you receive Social Security, it will be reduced by the premium you will pay. Currently, that premium is under $100. Under certain circumstances, you may be eligible for Medicare or Medicaid coverage before you turn 65.
Warning
Medicare will be available to you so long as the medical services are rendered in the United States. Medicare benefits will not cover any procedure that you receive if you move out of the country or travel overseas. Seniors are strongly urged to secure private health insurance before leaving. This is especially important for older people who are more likely to become ill.
Potential
Medicare will cover about 80 percent of most medical care. However, it does not cover prescription drugs. For that reason, you can subscribe to Medicare Supplemental coverage that, for little or no additional premium, will take over where Medicare stops.
