Understanding Medicare Payroll Deductions: Maximum Limits & Employee Obligations

Medicare tax is levied on employees' wages. If you work in the United States, you are required to pay this tax, even if you are not entitled to receive Medicare benefits. Medicare tax is included in the payroll taxes that employers withhold from employees' paychecks and is a percentage of the worker's income.

Medicare Tax

• Medicare tax is one of the federal taxes applied to your monthly income. Every employee who works in the country is required to pay Medicare tax, and sometimes American citizens who work outside the U.S. and meet conditions set by the Internal Revenue Service are also required to pay it. These taxes contribute to funds that are used to provide health insurance for senior citizens and also for some people with disability conditions. Individuals who paid Medicare tax while they were working receive Medicare Part A coverage for free when they become eligible.

Medicare Tax Amount

• According to the IRS's Publication 15 (Circular E: Employer's Tax Guide), as of 2011 the maximum Medicare tax rate is 2.9 percent. This percentage can be divided into two, which is applicable in cases in which employers withhold employees' taxes. In this case, the employee pays 1.45 percent of his wage in Medicare tax and the employer pays the other 1.45 percent. (The employer pays out of its own pocket, but the percentage is determined based on the employee's wage.) However, if you are self-employed, you must pay the entire 2.9 percent in Medicare tax yourself.

Medicare Coverage

• If you pay Medicare tax, you are enrolled in Medicare Part A for free. Part A coverage includes hospital care, hospice care and patient care in skilled nursing facilities. However, your Medicare tax does not pay for other Medicare coverage. If you want to enroll in additional Medicare plans, you have to pay monthly premiums. Medicare Part B is medical insurance that helps you pay for medical costs such as preventive care and doctor visits. Part C is additional coverage through private plans. Part D is prescription drug coverage.

Medicare and Social Security Tax

• Medicare tax and Social Security tax are connected. In some cases, you can receive Medicare benefits earlier than 65 years of age. In this case, to receive Medicare, you also have to receive disability benefits. The two main public programs of disability benefits are run by the Social Security Administration. To qualify for these benefits, you must have paid Social Security tax. As of 2011, Social Security tax is 4.2 percent of an employee's income, with 6.2 percent of the employee's income paid by the employer.