How do Medicare payroll taxes affect my benefits?

Kimberly Lankford,

AARP

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En español

Published October 28, 2022

/ Updated October 19, 2023

Medicare payroll taxes, like Social Security taxes, are automatically deducted from your paycheck under the Federal Insurance Contributions Act (FICA).

Ultimately, these accumulated tax payments determine whether you receive Medicare Part A without having to pay a premium. If you or your spouse had Medicare taxes deducted from your paychecks for at least 40 quarters of work, a total of 10 years or more, and you’re 65 or older, you’re eligible for premium-free Part A coverage.

You must earn a certain amount of money each calendar quarter to earn work credits. That amount changes each year.

How do I earn work credits?

In 2024, you earn one work credit for every $1,730 in earnings, up to a maximum of four credits a year. At the federal minimum wage of $7.25, that’s a little less than six 40-hour weeks of work in a 13-week quarter.

What if you haven’t earned 40 work credits?

If neither you nor your spouse earned 40 work credits, you’ll have to pay monthly premiums to receive Part A coverage when you enroll in Medicare at 65 or older. In 2024, if you or your spouse paid Medicare taxes for 30 to 39 quarters, you’ll pay $278 a month for Part A. If you or your spouse paid Medicare taxes for fewer than 30 quarters, you’ll pay $505 a month for Part A.

You may be eligible for Medicare before age 65 under different rules if you qualify because of a disability or if you have end-stage renal disease or amyotrophic lateral sclerosis (ALS), also known as Lou Gehrig’s disease.

Do work credits affect Part B premiums?

No. Work credits don’t affect premiums for Medicare Part B. Most people pay $164.90 a month for Part B in 2023, or $174.70 in 2024. The premiums are higher in 2023 for single filers who earned more than $97,000 and joint filers earning more than $194,000 on their last tax return on file. The income limits for the high-income surcharge rise to $103,000 for single filers and $206,000 for joint filers in 2024.

What do I pay in Medicare payroll taxes?

As an employee, you pay 6.2 percent of your applicable earnings in Social Security taxes and 1.45 percent on all earnings in Medicare taxes. Your employer contributes an equal amount, for a total of 12.4 percent for Social Security and 2.9 percent for Medicare.

Social Security taxes are assessed only up to a certain income level, which is $160,200 in 2023 and $168,600 in 2024, but Medicare taxes are assessed on your total income. If you earn $50,000 a year, you’ll pay $725 annually in Medicare taxes.

You continue to pay Medicare taxes as long as you’re working, even if you’re receiving Medicare benefits.

Special rules for the self-employed: If you’re self-employed, you’ll pay both the employer’s and the employee’s share of Social Security and Medicare taxes; however, you can deduct half of what you pay when you file your income taxes.

Extra taxes for high earners: If you file federal taxes as a single earner and your income is more than $200,000, you must pay an extra 0.9 percent in Medicare taxes on your income above that threshold. The same applies to those who are married, filing jointly and making more than $250,000.

Who doesn’t pay Medicare taxes?

Federal employees were exempt from paying FICA taxes until January 1983. They started paying the Medicare portion of the FICA tax after that date. Federal employees as of Jan. 1, 1983, received credit toward Medicare eligibility for quarters that they worked before that date without paying Medicare taxes.

Some federal, state and local government employees still pay only the Medicare portion of the FICA tax but not the Social Security portion. They can use quarters of coverage they earn to meet requirements for premium-free Part A, but not for monthly Social Security benefits.

Members of certain religious groups may be exempt from paying Social Security taxes if they’re opposed to public insurance for religious reasons. But they must waive their rights to receive Social Security and Medicare benefits.

Keep in mind

If you didn’t pay Medicare payroll taxes for long enough to qualify for premium-free Part A, you may be able to get help with the premiums from one of the Medicare Savings Programs in your state. Eligibility is based on your income and assets, depending on your state. For example, the Qualified Medicare Beneficiary program helps pay the premiums, deductibles, coinsurance and copayments for parts A and B.

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Kimberly Lankford is a contributing writer who covers Medicare and personal finance. She wrote about insurance, Medicare, retirement and taxes for more than 20 years at Kiplinger’s Personal Finance and has written for The Washington Post and Boston Globe. She received the personal finance Best in Business award from the Society of American Business Editors and Writers and the New York State Society of CPAs’ excellence in financial journalism award for her guide to Medicare.