You have probably noticed throughout your life that taxes are being taken from your paycheck, most notably FICA (Federal Insurance Contributions Act). The FICA tax is what you pay towards Social Security and Medicare benefits that you will use later in life. It is what essentially pays for all of your Medicare Part A (hospital insurance) bills. If you do not pay these taxes, you will face some difficulties when the time comes to enroll in Medicare.
The Medicare Tax Rate
FICA is made up of two separate taxes, Social Security and the Medicare tax. While Social Security was introduced after the Great Depression, the Medicare tax began in 1966 to address the problem of providing health care for older adults. When it began, the Medicare Tax rate was 0.7% of an employee’s wages, with the employer and employee each responsible for paying .035%. The rate has risen since then to 2.9%, with each paying 1.45%.
What The Medicare Tax Funds
As stated, Medicare is largely funded by the taxes that are taken out of your paycheck. If you work a job where you get “money under the table,” or if you don’t meet certain work criteria, then you will not be eligible to receive premium-free Part A services. These services include:
- Inpatient care in a hospital
- Skilled nursing facility care
- Inpatient care in a skilled nursing facility (not custodial or long-term care)
- Hospice care
- Home health care
So what happens when you turn 65 and try to sign up for Medicare if you have not paid enough into the system?
Medicare Premiums
Just because you did not pay taxes does not mean you cannot sign up for Medicare and get Part A coverage. It just means that you will have to pay for Medicare Part A, which is usually premium-free. The current premium rate for Part A is $480.70 a month. If you do not sign up during your initial enrollment period, then you will also face a late penalty.
The above also applies if you did not work for at least 10 years, or 40 quarters. Generally in this case you will not be able to get premium-free Part A insurance. However, there are some ways you can get Part A, specifically:
- If you have a spouse who paid Social Security taxes for 10 years.
- If you meet citizenship and residency requirements.
Between the Social Security tax and the Medicare tax, your take-home pay may not be as much as you might wish. However, these taxes provide you with insurance when you retire. Remember, even if you did not pay enough Medicare tax over your lifetime, you can still enroll in Medicare. Just be prepared to pay for the Part A premiums that will be free to other seniors.
