For the government to provide Medicare to 67.4 million people per month, it has to get the money from somewhere. That funding, totaling $1 trillion in 2023 , comes from a combination of government contributions, payroll taxes, and monthly premiums paid by Medicare beneficiaries.
Each part of Medicare is financed through different methods, and the funds allocated to one part of the program cannot be used to cover expenses for another part. The term Medicare tax , also known as the hospital insurance tax, refers to the 2.9% tax on earnings and income by current U.
S. workers and is the primary funding source for Medicare Part A (hospital insurance). In 2023, roughly $368 million was contributed to Medicare from this Medicare tax.
“Employees, employers, and the self-employed contribute to the Medicare tax, to support our Medicare program for senior and disabled Americans,” says Ge Bai , PhD, CPA, professor of accounting at Johns Hopkins Carey Business School. Employer and employee contributions to the Medicare tax Employers are required to withhold Medicare tax from their employees. “The employer and employee each contribute 1.
45% of gross earnings to total the 2.9% Medicare tax withholding,” says Bai. Here is an example, says Bai: An employee has $5,000 in earnings for each pay period.
In addition to income and Social Security taxes, the employee portion of Medicare tax, which is 1.45% of that $5,000, or $72.50, will be taken out of that payroll.
The same amount ($72.50).