Do you know how much you are actually paying in taxes toward Medicare? The average American worker knows that a portion of their pay goes toward Medicare taxes. But they don’t know for sure how it is calculated or the exact amount they are contributing.
Medicare tax is the most straightforward and easy tax to calculate. Federal and state income taxes are calculated on a set of marginal tax brackets. Social security tax is solely based on income that is below a certain threshold that changes annually. The Medicare tax rate is a percentage consistently applied to all earned wages.
The average American works full time for about forty years, and 2.9% of their income goes toward Medicare taxes. This percentage is shared with the employer though, so 1.45% of the individual’s pay goes toward Medicare and the employer matches that amount to meet the 2.9% requirement.
According to the Bureau of Labor Statistics, 137.9 million Americans were working in 2015. $241.1 billion was paid in Medicare payroll taxes that year. Of that amount, $211.9 billion came from wage income. The remaining amount came from other sources that do not impact the average American. When the total Medicare tax from wage income is divided by the number of average American workers, we find the average contribution was about $1,537 per worker. Keep in mind, half of that is paid by the workers employer, so technically $769 came directly from the workers’ wages. This is consistent with data from the Census Bureau which looks at an average annual wage of $53,000.
As of October 11, 2018, the Social Security Administration made its annual announcement regarding the tax cap on maximum earnings when calculating the social security portion of payroll taxes. In 2019, the Medicare Tax rate will remain at 2.9%, with the percentage split between employer and employee and will apply to all earned wages.
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