You’ve been paying Medicare and Social Security taxes. And you’re wondering when it’s going to end? Discover when that will happen, and why those taxes are valuable for your future retirement benefits.
How are your Social Security and Medicare benefits funded? Through your earned income. Payroll taxes under the Federal Insurance Contribution Act (FICA) or the Self-Employed Contributions Act (SECA) fund your Social Security benefits—including Medicare.
If you are employed or self-employed in the United States you pay FICA or SECA taxes. These payroll deductions fund your Social Security and Medicare benefits and appear as FICA on your W-2 form. Some employers separate Social Security from Medicare, so you may see them listed on separate lines on the W-2.
Social Security benefits provide partial replacement income if you’re a qualified retiree or disabled person, as well as for spouses, children, and survivors.
The Social Security Administration (SSA) tracks your earnings throughout your career. It uses the 35 highest-earning years to calculate the monthly Social Security benefit you will collect when you reach full retirement age.
In order for you to qualify, you must accrue 40 credits. The benefit amount you receive is based on your earnings history, your full retirement age, and the age when you start to claim Social Security—which can begin as early as age 62.
Medicare is a United States federal health insurance program that reduces the cost of healthcare services. Medicare plans cover people age 65 or older, younger people who meet eligibility requirements, and individuals with certain diseases. You are eligible for premium-free Medicare Part A if you are age 65 or older and you or your spouse worked and paid Medicare taxes for at least 10 years.
By paying Medicare taxes (part of FICA), you have paid into a fund to assist with Medicare Part A, also known as hospital Medicare starting at age 65. Medicare Part A covers care received during hospital stays or at a skilled nursing facility.
You do not need to retire to get Medicare benefits. You may continue working. But you should enroll in your Part A Medicare benefit three months before age 65. If you don’t enroll when you first become eligible, you may have to wait until later in the year and incur a penalty.
In most cases, if you don’t sign-up for Medicare Part B when you’re first eligible you may have to pay a Part B late enrollment penalty. You’ll have to pay this penalty for as long as you have Part B and there could be a gap in your health coverage.
There are two reasons that you can choose to delay Part B enrollment without a penalty.
You have health insurance with your employer or your spouse’s employer.
If your/spouse’s employer has 19 or fewer employees then you may need to sign-up for Medicare Part A and Part B when you’re first eligible. If your/spouse’s employer has 20 or more employees ask your benefits manager if you have creditable group health plan coverage as defined by the Internal Revenue Service (IRS). If so, then you could have the option to delay Part B enrollment until you lose either coverage.
You lived in a foreign country when you turned 65.
You’re first eligible to enroll in Medicare Part B the month that you return to the United States to establish your new residence. You won’t pay a late enrollment penalty if you enroll within three months of when you first return to the U.S.
If one of these reasons applies to you, then you can choose to delay enrollment in Medicare Part B without penalty.
Medicare Part B comes with an extra monthly cost and covers outpatient care, preventative services, ambulance services, and durable medical equipment. Medicare Part B covers doctor’s visits, lab tests, and coverage for orthopedic, cardiology, radiology, and other specialists from A to Z. Screening for common medical conditions, annual wellness checks, vaccinations, and second opinions about a medical issue are also covered by Part B. In general, Part A and Part B cover 80% of Medicare-approved services. You would be responsible for the remaining 20%.
Your medical insurance through your employer, or your spouse’s, should be reviewed to determine whether Part C or Medicare Advantage coverage and Part D—prescription drug coverage is right for you.
Answer a few quick questions to find which Medicare coverage provides the best coverage and value for you.
As long as you’re employed or self-employed, you pay FICA taxes. That’s even if you’re currently receiving Social Security and/or Medicare benefits.
When you take either/both of these benefits and continue to work, you continue to add to the FICA fund. Working past full retirement age may increase your Social Security benefits because contributions continue to be paid.
If you have no earned income, you do not pay Social Security or Medicare taxes. There is no Social Security or Medicare tax charged on Social Security benefits. That’s because these are not taxable income.
Read more by David Luna
I am a Spanish-speaking Arizona Life and Health Insurance Licensed Agent and have been helping people with Medicare since 2005. I am a Marine Corps Veteran & former police officer. I enjoy watching football and basketball but hold family time in the highest regard.