If you’ve ever glanced at your earnings statement from a job, you’ve probably noticed some tax withholding. The federal government mandates employers to collect FICA (Federal Insurance Contributions Act) taxes as part of their overall payroll taxes. The FICA tax consists of two different taxes. Social Security taxes support Social Security benefits, while Medicare taxes pay for Medicare Hospital Insurance (HI), which you will get as a senior.
Below, we’ll look at what Medicare taxes are and how they benefit you.
Like Social Security benefits, Medicare’s Hospital Insurance program is funded largely by employment taxes. If you work “under the table” you won’t pay into these systems. That’s why payroll tax withholding, although it takes a chunk out of your take-home pay, is actually providing you with something in return for those lost dollars in your paychecks.
Medicare HI taxes began in 1966, at a modest rate of 0.7%. Employers and employees were each responsible for paying 0.35%. Employees paid their share when their employers deducted it from their paychecks. Since 1966 the Medicare HI tax rate has risen, though it’s still below the Social Security tax rate. The current Social Security tax is 12.4% with employees and employers each paying 6.2%.
Today, the Medicare tax rate is 2.9%. Employers and employees split that cost with each paying 1.45%. Unlike with Social Security taxes, there is no limit on the income subject to Medicare taxes.
Medicare Taxes and the Affordable Care Act
The Affordable Care Act (ACA) added an extra Medicare tax for high earners. This surtax is known as the Additional Medicare Tax. As of January 2013, anyone with earned income of more than $200,000 ($250,000 for married couples filing jointly) has to pay an additional 0.9% in Medicare taxes beyond the standard 1.45%. That entire 0.9% is the responsibility of the employee. It is not split between the employer and the employee.
If your income means you’re subject to the Additional Medicare Tax, your Medicare tax rate is 2.35%. However, this Medicare surtax only applies to your income in excess of $200,000. If you make $250,000 a year, you’ll pay a 1.45% Medicare tax on the first $200,000, and 2.35% on the remaining $50,000.
Another result of ACA reforms is the Net Investment Income Tax (NIIT). The NIIT, also known as the Unearned Income Medicare Contribution Surtax, is a 3.8% Medicare tax that applies to investment income and to regular income over a certain threshold. If your Modified Adjusted Gross Income exceeds $200,000 ($250,000, if you’re married and filing jointly) you may be subject to the NIIT. Examples of investment income that is subject to the NIIT include dividends, interest, passive income, annuities, royalties and capital gains.
The 3.8% tax applies to the lesser of either your net investment income or the amount by which your MAGI exceeds $200,000 (or $250,000 for joint filers). That means the NIIT acts as either an extra income tax or an extra capital gains tax. You can report your net investment income on IRS Form 8690.
According to the IRS, a taxpayer may be subject to both the Additional Medicare Tax and the NIIT, but not necessarily on the same types of income. That’s because the 0.9 percent Additional Medicare Tax applies to wages, compensation and self-employment income over the $200,000 limit, but it does not apply to net investment income.
The Medicare tax is a federal employment tax that supports a section of the Medicare insurance program. In 2024, the Medicare tax rate is 1.45% for employees and 1.45% for employers, totaling 2.9%. Medicare tax, like Social Security tax, is taken from an employee’s paycheck or paid by the self-employed. It’s also known as the “hospital insurance tax,”
The Medicare tax pays for Part A of the Medicare program, which provides hospital insurance to people 65 and older, as well as those with specified disabilities or medical conditions. Medicare hospital insurance covers hospitalization, hospice, nursing home care, and certain home healthcare.
Contributions to Medicare
Nearly everyone who works in the U.S. is required to pay Medicare taxes. Under the Federal Insurance Contributions Act (FICA), employers withhold Medicare and Social Security taxes from employees’ paychecks. The Self-Employed Contributions Act (SECA) mandates that self-employed workers pay Medicare and Social Security tax as part of their self-employment tax.
Medicare taxes and Social Security taxes held in trust funds by the U.S. Treasury. Medicare tax is kept in the Hospital Insurance Trust Fund and is used to pay for Medicare Part A. Costs of Medicare Part B, medical insurance, and Medicare Part D, prescription drug coverage, are covered by the Supplemental Medical Insurance Trust Fund, funded with premiums paid by beneficiaries, tax revenue, and investment earnings.
The money is intended for current and future Medicare beneficiaries; however, the Hospital Insurance Trust Fund has historically faced solvency and budget pressures and is expected to be exhausted by 2031. Medicare services may be cut, or lawmakers may find other ways to finance these benefits.
2024 Medicare Tax Rates
In 2024, the Medicare tax rate is 2.9%, split evenly between employers and employees. W-2 employees pay 1.45%, and their employer covers the remaining 1.45%. Self-employed individuals, as they are considered both an employee and an employer, must pay the entire 2.9%.
Unlike Social Security tax, there is no income limit to which Medicare tax is applied. An individual’s Medicare wages are subject to Medicare tax. This generally includes earned income such as wages, tips, vacation allowances, bonuses, commissions, and other taxable benefits.
Medicare Surtaxes
In 2013, the Affordable Care Act (ACA) introduced two Medicare surtaxes to fund Medicare expansion: the additional Medicare tax and the net investment income tax. Both surtaxes apply to high earners and are specific to different types of income. It is possible for a taxpayer to be subject to both Medicare surtaxes.
Additional Medicare Tax
Individuals whose earned income, including wages, compensation, and self-employment income, exceeds certain thresholds pay additional tax. Single filers who earn more than $200,000 and married couples filing jointly who earn more than $250,000 contribute more to Medicare.
Read Also: How to Pay Property Tax of Previous Years
The additional Medicare tax rate is 0.9% but only applies to the income above the taxpayer’s threshold limit. For an individual earning $225,000 a year, the first $200,000 is subject to a Medicare tax of 1.45%, and the remaining $25,000 is subject to an additional Medicare tax of 0.9%. The surtax is withheld from an employee’s paycheck or paid with self-employment taxes, with no employer-paid portion.
Net Investment Income Tax
The net investment income tax, also known as the “unearned income Medicare contribution surtax,” is an additional 3.8% tax applied to net investment income. Like the additional Medicare tax, there is no employer-paid portion.
Net investment income may include taxable interest, dividends, nonqualified annuities, capital gains, and rental income. It does not include income excluded for income tax purposes, such as tax-exempt municipal bond interest. Net investment income tax is applied to an individual’s net investment income or the excess modified adjusted gross income (MAGI) over certain thresholds, whichever is less.
If a married couple filing jointly earned $225,000 in wages plus $50,000 in investment income, their MAGI is $275,000. The net investment income tax threshold for married couples filing jointly is $250,000. The couple pays a 3.8% tax on the lesser of the excess MAGI ($25,000) or the total investment income ($50,000). In this case, the couple would owe a net investment income tax of $950 (3.8% x $25,000).
Medicare tax is used to fund the Medicare health system in the United States. The tax funds are used for Medicare Part A, which covers hospital insurance for senior citizens and those with disabilities. Part A costs include hospital, hospice, and nursing facility care.
The combination of Social Security and Medicare tax rates, plus the income tax withheld from your paycheck, puts a serious dent in your take-home pay. Currently, the employee share of Social Security and Medicare taxes is 7.65%. If you make over $200,000, remember to account for the Additional Medicare Tax. It may seem like a lot of trouble now, but all this tax withholding is designed to give you a safety net when you reach retirement.
What is the Medicare Tax Rate in Virginia?
Virginia has a progressive state income tax system with four tax brackets that range from 2% to 5.75%. The bracket you fall into will depend on your income level. Since the highest rate applies to income over $17,000, most Virginia taxpayers will find themselves paying the top rate, at least partially. Filing status does not affect state income taxes in Virginia, and no cities in the state levy local income taxes.
Virginia Paycheck Quick Facts
- Virginia income tax rate: 2% – 5.75%
- Median household income: $87,249 (U.S. Census Bureau)
- Number of cities that have local income taxes: 0
How Your Virginia Paycheck Works
As in all other states, Virginia employers must withhold FICA taxes from their employee’s paychecks. FICA taxes consist of Social Security and Medicare taxes. Social Security withholding is 6.2% of your income, while Medicare withholding is 1.45% of your income each pay period. Your employer will match these percentages so that the total FICA contribution is double what you pay. If you’re a single filer who earns a salary in excess of $200,000, wages over that amount are subject to a 0.9% Medicare surtax. For joint filers, this surtax applies to income above $250,000, while married people filing separately will see it added for any income above $125,000.
In some instances, you might assume the responsibility of paying 100% of your FICA taxes instead of the usual 50%. This is the case with self-employed taxpayers. Since these types of workers do not have the luxury of having an employer to contribute half of their FICA taxes, they must cover all of these taxes alone. However, there is a deduction available during tax season so that self-employed workers can recoup some of the “employer” portion of their FICA taxes.
Virginia employers also withhold money for federal income taxes. How much you pay will depend on various factors, including your salary, marital status and whether you have any dependents. Remember that whenever you start new employment or you undergo major life changes, like getting married or having a child, you will need to fill out a new Form W-4.
The IRS has recently made revisions to the Form W-4. The new version no longer lets you claim allowances, as it instead features a five-step process that asks you to enter annual dollar amounts for any additional income or jobs, as well as things like non-wage income, income tax credits, itemized and other deductions and total annual taxable wages.
Keep in mind that your paycheck frequency also plays a role in your cash flow each month. More frequent but smaller paychecks may mean you budget a bit differently than if you get fewer, larger paychecks.
Virginia Median Household Income
Year | Median Household Income |
---|---|
2022 | $87,249 |
2021 | $80,268 |
2020 | $82,214 |
2019 | $81,313 |
2018 | $77,151 |
2017 | $70,811 |
2016 | $66,451 |
2015 | $61,486 |
2014 | $66,155 |
2013 | $65,907 |
2012 | $64,632 |
Like most states, Virginia also collects a state income tax. Taxpayers fall into one of four income brackets, depending on income level. The top tax rate of 5.75% applies to taxable income over $17,000, so most taxpayers will be paying that rate on at least some of their income. Virginia’s income tax brackets apply to all residents regardless of filing status.
If you are looking to buy a home in Virginia or if you want to refinance a mortgage on a home you already own, make sure to check out the Virginia mortgage guide for important information on rates and details about getting a mortgage in the Old Dominion.
Income Tax Bracket
Virginia Taxable Income | Rate |
---|---|
$0 – $3,000 | 2.00% |
$3,000 – $5,000 | 3.00% |
$5,000 – $17,000 | 5.00% |
$17,000+ | 5.75% |
A financial advisor can help you understand how taxes fit into your overall financial goals. Finding a financial advisor doesn’t have to be hard.
There’s a simple way to have an impact your Virginia paycheck. For one, you can elect to set up an additional dollar withholding from each of your paychecks to go toward taxes. Yes, your paychecks will be smaller now, but it’s easier to avoid underpaying and it may increase your chances of getting a tax refund in April. At the very least, it’ll make it less likely that you’ll face a big bill.
Do you have health and life insurance for you and your family through an employer-sponsored plan? Any premiums you pay for those are deducted from your paycheck. The same goes for your contributions to a retirement plan like a 401(k) or 403(b) via your company. Additionally, the money you put toward these retirement plans is subtracted from your wages before taxes are applied. This lowers your taxable income and you may owe less in taxes as a result.
Virginia Top Income Tax Rate
Year | Top Income Tax Rate |
---|---|
2023 | 5.75% |
2022 | 5.75% |
2021 | 5.75% |
2020 | 5.75% |
2019 | 5.75% |
2018 | 5.75% |
2017 | 5.75% |
2016 | 5.75% |
2015 | 5.75% |
2014 | 5.75% |
2013 | 5.75% |
What States Have Cheapest Medicare?
In 2024, Medicare Advantage Prescription Drug (MAPD) plans are generally affordable. On average, the monthly premium for these plans is $18, but in some areas, some plans don’t require any monthly payment.
If you choose a MAPD plan, you’ll also have a limit on the total amount you’ll need to spend on medical expenses in a year. However, the MAPD plan can only make you pay $8,300 for in-network costs out-of-pocket annually.
The most expensive plans are in California, Pennsylvania, and West Virginia, where people spend around $60 monthly.
State | Average Premium | Number of Part D plans availiable |
---|---|---|
Alabama | $46 | 24 |
Alaska | $44 | 21 |
Arizona | $54 | $28 |
Arkansas | $48 | 23 |
California | $60 | $26 |
Colorado | $52 | $23 |
Connecticut | $50 | $24 |
Delaware | $57 | 22 |
Florida | $57 | 23 |
Georgia | $50 | 24 |
Hawaii | $47 | 27 |
Idaho | $49 | 23 |
Illinois | $42 | 24 |
Indiana | $43 | 24 |
Iowa | $48 | 24 |
Kansas | $43 | 23 |
Kentucky | $43 | 24 |
Louisiana | $46 | 21 |
Maine | $50 | 24 |
Maryland | $47 | 22 |
Massachusetts | $51 | 24 |
Michigan | $46 | 27 |
Minnesota | $48 | 24 |
Mississippi | $43 | 22 |
Missouri | $49 | 23 |
Montana | $48 | 24 |
Nebraska | $48 | 24 |
Nevada | $48 | 23 |
New Hampshire | $49 | 24 |
New Jersey | $51 | 24 |
New Mexico | $46 | 24 |
New York | $57 | 19 |
North Carolina | $51 | 24 |
North Dakota | $48 | 24 |
Ohio | $47 | 24 |
Oklahoma | $45 | 24 |
Oregon | $50 | 24 |
Pennsylvania | $60 | 26 |
Rhode Island | $50 | 24 |
South Carolina | $57 | 25 |
South Dakota | $48 | 24 |
Tennessee | $47 | 24 |
Texas | $48 | 27 |
Utah | $49 | 23 |
Vermont | $50 | 24 |
Virginia | $45 | 24 |
Washington | $50 | 24 |
Washington, DC | $47 | 22 |
West Virginia | $59 | 26 |
Wisconsin | $47 | 23 |
Wyoming | $48 | 24 |
Final Thoughts
All employed individuals in the United States pay the Medicare tax, even if the employee or employer is not a citizen of the country.
The Medicare tax is a tax charged to individuals in order to fund the Medicare system. The tax is charged to people on their paychecks, much like the Social Security tax. The Medicare tax rate is 2.9% which is split between the employer and the employee.