What are Medicare Wages?

Medicare wages are the types of income that can be taxed under the U.S. Medicare tax. For many workers, such wages are automatically deducted from take-home earnings. Not all sources of income are subject to the Medicare tax, and not all individuals are required to it. There are also ways to reduce the overall amount of Medicare wages with tax-deductible offsets. While the term “Medicare wages” is traditionally used to refer specifically to the U.S. program, some other countries do have similar programs with taxation requirements.

Most American workers are subject to three main taxes: federal income, social security and Medicare taxes. Some may also be subject to state income tax. The monies derived from the Medicare tax generally go toward funding the national Medicare program, which is a government-run health care program designed to service older adults and people with certain disabilities. This tax, which is a small percentage of an individual’s overall income, is typically withheld from a person’s paycheck and paid directly to the government by an employer. Those who are self-employed or whose employer does not withhold taxes automatically are generally required to pay the government directly.

A yearly accounting of all taxable and non-taxable wages called a W-2 form is typically issued to most employees. Generally used for tax filing purposes, a W-2 form outlines wages earned over the year and breaks them up into categories, including federal taxable, social security and Medicare wages. Self-employed individuals, contractors and others whose employers don’t withhold taxes generally do not receive W-2 forms and are required to keep track of various taxable wages on their own.

Not all sources of income are counted as Medicare wages. For example, small amounts of tips and non-cash sources of income, such as bus passes given as transportation allowances and sporting event tickets given as bonuses, are typically not counted toward overall Medicare wages. Individuals with very low incomes who make less than a set amount of money each year are also typically not liable for Medicare taxes. Furthermore, certain pre-tax deductions can help reduce one’s Medicare tax liability. For example, the amount a person pays toward employer sponsored health insurance and/or a health savings account is typically deducted from Medicare wages.

Other countries have programs similar to the U.S. Medicare program. Australia, for example, has a health program with the same name that that many citizens are required to pay taxes on toward. Medicare wages in Australia are typically subject to a tax known as the Medicare levy. One of the key differences from the U.S. Medicare system is that the Australian program typically covers the health-care of all citizens, regardless of age.