What are Medicare wages and tips on a W-2?

 The Medicare Wages and Tips section on  the W-2 form states the amount of your income that is subject to the Medicare tax deduction. The number included in this box will usually be the same as the ""Wages, Tips, Other Compensation"" section on the W-2 form. These matching numbers indicate that Medicare tax   is based on 100% of an employee's gross income .

What wages are subject to Medicare tax?

Nearly all wages earned by an employee in the United States are subject to Medicare tax. How much tax a person will be charged will depend on his or her annual income.

However, some pre-tax deductions  are exempt from  FICA tax , which includes Social Security and Medicare taxes. These pre-tax deductions include retirement contributions, such as  401(k) accounts  and individual retirement accounts, as well as life insurance premiums. Your  pay stub  should include details on how much money has been deducted from your total income.

What is the Medicare tax rate?

The Medicare tax rate in 2020 is 1.45% for  employers  and 1.45% for employees. However, this rate varies depending on your annual income.

You can expect to be taxed at a rate of 1.45% if you fall into the following categories:

• For single taxpayers:  The first $200,000 of your pay
• For married taxpayers filing taxes jointly:  The first $250,000 of your pay
• For married taxpayers filing taxes separately:  The first $125.00 of your pay

If your income exceeds the amount in your range, an additional 0.9% (known as the Additional Medicare Tax) will be added to your Medicare tax for each amount you earn over the limit, bringing the total tax rate to 2.35%.

If you're self-employed, the 2020 Medicare tax rate is 2.9% on the first $137,700 of your annual income. Don't forget to check the rates and income limits for your current tax year as needed.

What is Medicare tax used for?

Medicare taxes go to fund the Medicare program - it's a federal health insurance program for Americans who are over 65 years old or who have certain disabilities and illnesses. The money from Medicare taxes covers three areas.

Part A: Hospital Insurance

Part A covers hospital stays, hospice care, care in nursing facilities, and some aspects of home health care.

Part B: Medical Insurance

Part B pays for some doctors' services, outpatient care and preventive services, and covers the cost of medical supplies.

Part D: Prescription drug coverage

Part D is intended to cover the cost of prescription drugs, including doctor-recommended injections and vaccines.

funding the affordable care act

The money collected from the additional Medicare tax is funded under the Affordable Care Act, also known as Obamacare.

This law aims to provide health insurance coverage to uninsured Americans. It also helps low-income families qualify for more savings on health insurance plans through cost-sharing reductions and premium tax credits.

Who should pay Medicare tax?

Nearly everyone working in the United States is subject to Medicare tax, regardless of their citizenship or residency status. Nonresident aliens with H-2, H-2A, J-, and Q-visas may be exempt from Medicare tax if they   meet all IRS exemption requirements .

What are employers responsible for regarding Medicare taxes?

Employers are responsible for withholding and reporting Medicare taxes taken from employee wages. They must deposit these wages into an authorized bank or financial institution.

Employers are also required to contribute 1.45% of the employee's wages and tips deducted for Medicare. For example, if an employee earns $2,000 during his or her pay period, a $29 contribution will be deducted from that employee's wages, and his or her employer will match that contribution with an additional $29 paid for Medicare.

The 0.9% additional Medicare tax applies only to employees, so employers are not obligated to contribute an amount equal to that tax contribution.

Employers who do not comply with these standards may face criminal or civil penalties.