Medicare wages are income subject to US Medicare tax, which funds the national healthcare program for older adults and those with certain disabilities. Not all income is subject to Medicare tax, and some deductions can reduce liability. Other countries, such as Australia, have similar programs.
Medicare wages are the types of income that can be taxed under US Medicare tax. For many workers, such wages are automatically deducted from take-home earnings. Not all sources of income are subject to Medicare tax, and not everyone is required to. There are also ways to reduce the total amount of Medicare wages with tax-deductible offsets. While the term “Medicare wages” is traditionally used to refer specifically to the United States program, some other countries have similar programs with tax requirements.
Most American workers are subject to three main taxes: federal income, social security, and Medicare taxes. Some may also be subject to state income tax. Funds derived from the Medicare tax generally go to fund the national Medicare program, which is a government-run health care program designed to serve older adults and people with certain disabilities. This tax, which is a small percentage of a person’s total income, is usually withheld from a person’s paycheck and paid directly to the government by an employer. Generally, those who are self-employed or whose employer does not automatically withhold tax must pay the government directly.
An annual accounting of all taxable and nontaxable wages called a W-2 form is generally issued to most employees. Typically used for tax reporting purposes, a W-2 form describes wages earned during the year and divides them into categories, including federal tax, social security, and Medicare wages. Self-employed individuals, contractors, and others whose employers do not withhold taxes generally do not receive W-2 forms and are required to keep track of various taxable wages on their own.
Not all sources of income are counted as Medicare wages. For example, small amounts of tips and non-cash sources of income, such as bus passes awarded as transportation allowances and sporting event tickets awarded as bonuses, are generally not counted toward overall Medicare wages. Very low-income people who earn less than a set amount of money each year are also generally not responsible for Medicare taxes. In addition, certain pre-tax deductions can help reduce Medicare tax liability. For example, the amount a person pays for employer-sponsored health insurance and/or a health savings account is typically deducted from Medicare wages.
Other countries have programs similar to the US Medicare program. Australia, for example, has a health program by the same name that many citizens must pay for. Medicare wages in Australia are generally subject to a tax known as the Medicare levy. One of the main differences from the US Medicare system is that the Australian program generally covers health care for all citizens, regardless of age.
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