What Is the Definition of Medicare Deductions?


Quick Answer

Medicare deductions are funds withheld from employee paychecks to pay into the federal Medicare system, as reported by the Internal Revenue Service (IRS). The Medicare system relies on these funds and paying into the system is required of all employees and self-employed individuals.

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Full Answer

Taxes supporting Medicare are withheld from employee pay at a set rate every tax year, according to the IRS. These funds pay for the Medicare program's health coverage of senior citizens and other groups. Payment of Medicare taxes does not guarantee eligibility for the program, and specific guidelines exist for gaining access to Medicare benefits. Generally, US citizens over the age of 65 are the primary beneficiaries of this program designed to provide health care for the elderly and disabled. The program reimburses health care providers for health care costs.

Self-employed individuals pay Medicare taxes separately as part of the self-employment tax. This is paid as a fixed percentage of annual income along with Social Security taxes. Both of these amounts are paid separately from federal income taxes. Employers typically pay part of these taxes for employees, but self-employed taxpayers are obligated to pay the entire tax, states the IRS. Some types of income are not subject to Medicare taxes. If this income is withheld incorrectly, the taxpayers must apply with the IRS to challenge the withholding and receive a refund.

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