Medicare is the Federal government’s program that provides health insurance for people who have reached age 65, and for certain younger people with disabilities.

Medicare benefits are funded by the Medicare tax.  This tax of 1.45% is levied on an employee’s net salaries, wages and tips.  These taxes are typically withheld by the employer and forwarded to the Federal government on the employee’s behalf.  The employer also pays an equal matching Medicare tax of 1.45% levied on the employer’s payroll to the Federal government.

If you are self-employed, you pay Medicare taxes as part of the quarterly Federal Estimated Tax Payments that you remit to the IRS.  Self-employed individuals are responsible for paying the full 2.9% (i.e., 1.45% on your self-employment “salary and wages” plus an additional 1.45% on your “employer payroll”).  The IRS allows self-employed individuals to deduct the employer portion of their self-employment taxes from their taxable income.

Unlike with Social Security, the Federal government does not set any limit on the amount of earnings from net salaries, wages and tips that are subject to the Medicare tax.

If you work for a Federal, State or Municipal government agency, the Medicare tax of 1.45% is withheld from your salary or wages (unlike with Social Security).

Additional Information

Medicare is comprised of several parts to help cover specific services:

Part A (Hospital insurance). Covers inpatient hospital stays, care in a skilled nursing facility, hospice care, and some home health care. Part A is mandatory. You usually don't pay a monthly premium for Part A coverage if you or your spouse paid Medicare taxes for at least 20 calendar quarters while working.

Part B (Medical insurance). Covers certain doctors' services, outpatient care, medical supplies, and preventive services. Part B is optional and is available at additional cost.

Part C (Medicare Advantage Plans). A type of Medicare health plan offered by a private company which contracts with Medicare. Medicare Advantage Plans are more like an HMO or PPO and provide all your Part A and Part B (and optionally, Part D) benefits. Part C is optional and is available at additional cost.

Part D (Prescription Drug Coverage). Coverage for prescription drugs. Part D is optional and is available at additional cost.

Most individuals subscribe to Medicare Part A and Part B coverages.  If you require prescription medications, then adding Part D coverage makes sense.

Medicare does impose limitations with respect to the types of services that it will cover under Parts A and B. Medicare also assesses an annual deductible that you must pay for your prescriptions before it will begin to pay for them under Part D coverage. For specific details, please refer to

You should apply for Medicare health insurance coverage exactly 3 months before you turn age 65. If you delay your enrollment, you may incur a late enrollment penalty, higher monthly premiums, and a gap in coverage.

To apply for Medicare insurance coverage, click here
Where's My Refund?

Once you have been approved for Medicare insurance coverage, you should contact your current employer or private health insurance provider to convert your current health insurance plan over to a “supplemental” health insurance plan, which would be accessed only after Medicare coverage benefits have been exhausted. Such a conversion should provide you with a significant reduction in the cost of the monthly premiums that you have been paying for such health insurance coverage.

The costs of your Medicare premiums are determined by your Modified Adjusted Gross Income (MAGI), as reported on your Federal Form 1040 income tax return from two years prior.  I.e., the cost of your 2022 Medicare premiums will be determined by your MAGI, as reported on your 2020 Form 1040 income tax return.  The cost of your 2021 Medicare premiums were determined by your MAGI, as reported on your 2019 Form 1040 income tax return.

If you are eligible for and receiving Social Security benefits, your Medicare premiums will be deducted directly from your monthly Social Security benefits. If you are not eligible for Social Security benefits, or you have opted to defer receiving your Social Security benefits to a later age, Medicare will bill you for your premiums quarterly.

Medicare | TwardyCPA

More Topics


Self-Employed Individuals

Gifts & Gift Tax


"As we moved through the data collection process of our tax preparation it was clear that Joe had our best interests at heart."

Adam & Karen, Owner | MetroWest, MA

"It's rare to meet a professional who is as detailed, thorough and thoughtful as Joe."

Mike Schell, Millis, MA

"I highly recommend Joe. He is able to explain to his clients today's complex tax issues in a manner that is more understandable."

NS, Sunapee, NH

Have a Question? Contact Us Today!

Sunapee: 603.763.0350

24 Pine Grove Rd., Sunapee, NH 03782

Lexington: 781.274.6600

405 Waltham St., Suite 382, Lexington, MA 02421