Federal taxes help the government to fund programs that help American citizens in several ways, such as with education and health insurance. The most prominent federal taxes are withheld from your paycheck every month and are called payroll taxes. Medicare tax is included in the payroll taxes, and it helps the federal government to pay for the costs of the Medicare program.
Medicare tax is the federal tax levied on your paycheck. All employees and self-employed individuals are required to pay Medicare tax. Employees and employers share the responsibility of paying Medicare tax, while a self-employed individual has to pay the whole Medicare rate. The income you receive every month (or every two weeks) is income after taxes have been paid. In this manner, you do not need to worry about paying these taxes (income tax, Medicare tax and Social Security tax) yourself, since your employer is required to do so.
Medicare Tax Purpose
The main purpose of Medicare tax is to fund the Medicare program. Medicare tax helps to pay for the costs of this program's benefits and allows you (and every other person who has paid Medicare tax) to receive Medicare Part A benefits for free. The objective of the Medicare program is to help American senior citizens to pay for the costs of health treatments. Without the Medicare program, many senior citizens would not be able to pay for their medical costs. Even though you are required to pay monthly premiums for Medicare Part B, Part C and Part D coverage, these premiums are lower than with private insurance companies that do not have a contract with Medicare.
Medicare Tax Rate
According to the IRS document "Publication 15," as of 2011, the Medicare tax has been kept the same in comparison with 2010 rates. Employees are required to pay 1.45 percent of their monthly or biweekly wage in Medicare tax, and employers must pay with their own money another 1.45 percent of each employee's income in Medicare tax. Both parts together make a total of 2.9 percent per employee's paycheck in the United States. Self-employed individuals have to pay out of their own pocket 2.9 percent of their income in Medicare tax.
How to Pay Medicare Tax
If you are an employee, your employer automatically withholds Medicare tax out of every paycheck you have and pays the IRS for you. Your employer sends form W-2 in the end of the tax year with the information regarding the taxes withheld from your income during the years. If you are a self-employed individual, you have to report your income for the year on Form 1040, Schedule C and Schedule SE. You must do so even if you do not owe income tax, since you must pay your Medicare and Social Secuirty tax as well.