Understanding Medicare Deductions
“Why do I have a Medicare deduction on my paychecks?”
I am asked this question frequently. Especially this time
of year when taxes are due.
The answer to why you have medicare deductions is a quick economic lesson. When Medicare was established, it became funded by FICA–the Federal Insurance Compensation Act–also designed to fund Social Security. Each year a rate is established, and that is paid in two ways. Your FICA is deducted from your Gross Taxable Income. If you are a W-2 employee, you pay half, and your employer matches it. If you are self-employed, you pay the full percentage. This amount is required even if you have retired, or are working, or are already on Medicare and still working. It is important to note the FICA works differently for those on Social Security (with income limits, etc.)
The FICA rate for 2021 is 7.65%. 6.2% for Social Security and 1.45% for Medicare deduction.
Earning Medicare Credits
This paycheck Medicare deduction is also how you earn your “Income Credits” required to qualify for Medicare when you turn 65. You must have 40 credits or worked a total of 10 years to qualify for Medicare. There is an occasional situation where someone has not worked much in positions that collect a paycheck; the most common example is the stay at home parent and homemaker. In planning your transition into Medicare, it is important to know where you stand on income credits and develop a plan if you do not have the required amount. Your accountant is the best person to help you if you are concerned that you may not have earned enough income credits.
Are you ready to plan your transition into Medicare? You should consult with a Medicare Insurance Advisor about 6 months before you turn 65 or plan to retire. This transition can be confusing at times, so I would love to help you with this transition. Reach out to me today to get a planning meeting scheduled. All of my services are always no charge to you.
More Frequently Asked Questions you may have:
How do I apply for Extra Help and Medicaid in Oklahoma?
Can you help me understand my current Advantage Plan?
What are all the different parts of Medicare?