What You Pay Into Social Security and Medicare

Social Security and Medicare are funded by payroll taxes that come out of your paycheck while you work. These taxes are split between you and your employer — each pays the same percentage. Once you turn 65 and start Medicare, you may pay additional premiums depending on your income and which parts of Medicare you choose.

The payroll tax rates are set by federal law and do not change based on your age or health. As of 2024, the Social Security tax rate is 6.2% of your wages, and the Medicare tax rate is 1.45%. If you are self-employed, you pay both the employee and employer portions, which totals 12.4% for Social Security and 2.9% for Medicare.

Once you reach age 65, you stop paying the Social Security tax on your wages. However, if you continue working past 65, you still pay Medicare tax on all your earnings, with no upper limit. There is also an additional 0.9% Medicare tax on wages above a certain threshold, which applies to higher earners.

Key Takeaways

  • Social Security tax is 6.2% of your wages and Medicare tax is 1.45%, split between you and your employer while you work.
  • Once you turn 65, you stop paying Social Security tax but continue paying Medicare tax on any wages from work.
  • Medicare Part B and Part D have monthly premiums that vary based on your income, and higher earners pay surcharges called Income-Related Monthly Adjustment Amounts (IRMAA).
  • Your Medicare premiums are deducted directly from your Social Security check unless you choose to pay separately.
  • Self-employed people pay both the employee and employer portions of these taxes, totaling 12.4% for Social Security and 2.9% for Medicare.

Medicare Premiums Based on Your Income

When you enroll in Medicare Part B (doctor visits and outpatient care) and Part D (prescription drugs), you pay monthly premiums. The standard Part B premium in 2024 is $164.90 per month, though this amount changes each year. Part D premiums vary by plan and insurance company, typically ranging from $7 to $100 per month depending on coverage level and location.

If your income is above a certain level, you pay a surcharge called Income-Related Monthly Adjustment Amount (IRMAA). This surcharge applies to both Part B and Part D. The income thresholds are based on your Modified Adjusted Gross Income (MAGI) from two years prior — so your 2024 premiums are based on your 2022 income. For 2024, if you are single and your MAGI exceeds $97,000, you begin paying IRMAA on top of your standard premium.

These surcharges can be substantial. A single person with a MAGI of $250,000 could pay an additional $230 per month for Part B alone in 2024. The surcharge amounts increase in brackets as your income rises, and they explore to both Part B and Part D separately.

How Your Medicare Premiums Are Paid

Most people have their Medicare Part B premium deducted automatically from their Social Security check each month. If you do not receive Social Security, Medicare sends you a bill. You can request to pay your premiums separately instead of having them deducted, but you must contact Medicare to make this change.

Part D premiums are usually paid directly to your insurance plan, not through Social Security. You receive a bill from your plan each month, or you can set up automatic payments from your bank account. If you miss a payment, your coverage may be suspended until the bill is paid.

If you delay enrolling in Part B or Part D when you first become may be able to access, you may face a permanent penalty that increases your premiums for life. The penalty is 10% of the standard premium for each 12 months you delay, and it continues even after you finally enroll.

Additional Costs Beyond Premiums

Medicare premiums cover only part of your healthcare costs. You also pay deductibles, copayments, and coinsurance when you use services. In 2024, the Part B deductible is $240 per year — you pay this amount before Medicare starts to help. After you meet the deductible, you typically pay 20% of the cost for most services, and Medicare pays 80%.

Part D has its own deductible, which varies by plan but is typically $35 to $100 per year. Once you meet the deductible, you pay a copayment or coinsurance for each prescription. There is also a coverage gap called the "donut hole," where you pay a higher percentage of drug costs until you reach a certain spending threshold.

If you enroll in a Medicare Advantage plan (Part C) instead of Original Medicare, your premiums, deductibles, and copayments are different and set by the insurance company. Some Advantage plans have $0 premiums but higher copayments for doctor visits or hospital stays.

What Happens to Your Social Security Taxes After 65

Once you turn 65 and claim Social Security, you no longer pay the 6.2% Social Security tax on your wages. However, your Social Security benefits are subject to federal income tax if your total income exceeds certain thresholds. For 2024, if you are single and your combined income (Social Security benefits plus other income) exceeds $25,000, up to 85% of your benefits may be taxable.

If you continue working past 65, you still pay Medicare tax on all your earnings. There is no age limit on Medicare tax — you pay it as long as you have wages. However, if you earn above the Social Security earnings limit in the year you claim benefits (before your full retirement age), Social Security reduces your monthly benefit by $1 for every $2 you earn above the limit. Once you reach full retirement age, this earnings limit no longer applies.

Some states do not tax Social Security benefits, while others tax them the same way the federal government does. Check your state's tax rules if you live in a state with income tax.

Understanding Your Social Security Statement

You can view your lifetime Social Security tax contributions and estimated benefits through your my Social Security account at ssa.gov. This account shows how much you and your employers have paid into Social Security over your working years. It also shows your estimated benefit amount at different claiming ages — 62, full retirement age, and 70.

Your statement does not show Medicare taxes separately, but you can see your Medicare tax contributions on your annual tax return (Form 1040) or on your pay stub while you work. The IRS tracks these contributions and they fund the Medicare trust fund.

If you notice errors in your earnings record, you should correct them as soon as possible. Errors can lower your Social Security benefit. You can dispute earnings by contacting Social Security directly with documentation like old tax returns or W-2 forms.

Tax Planning for Higher-Income Retirees

If you have substantial income from investments, pensions, or continued work, your Medicare premiums may increase due to IRMAA. Some retirees work with a tax professional to manage their income timing — for example, by deferring certain income or taking withdrawals from different account types in different years — to keep their Modified Adjusted Gross Income below the IRMAA thresholds.

You can appeal an IRMAA information if your current-year income is significantly lower than the prior-year income used to calculate your premium. Life events like retirement, divorce, or death of a spouse may may have access to you for a reduction. You must submit documentation and file the appeal within 60 days of receiving your IRMAA notice.

Working with a financial advisor or tax professional who understands Medicare rules can help you plan withdrawals and income sources to minimize your overall tax burden and premium costs in retirement.

Frequently Asked Questions

Do I pay Social Security tax after I turn 65?

No, you stop paying the 6.2% Social Security tax once you turn 65. However, if you continue working, you still pay Medicare tax on all your wages with no age limit. Social Security tax is only withheld on earnings up to a certain cap, but Medicare tax has no cap.

What is IRMAA and how much will it cost me?

IRMAA is an extra charge added to your Medicare Part B and Part D premiums if your income is above a threshold. For 2024, single people with income over $97,000 pay IRMAA. The surcharge ranges from about $70 to $230 per month depending on your income level. It is based on your income from two years prior.

Can I reduce my Medicare premiums if my income drops?

Yes, you can appeal your IRMAA if your current income is significantly lower than the prior-year income used to calculate it. Life events like retirement, job loss, or death of a spouse may may have access to you for a reduction. You must file the appeal within 60 days of receiving your notice and provide documentation of the change.

Are my Social Security benefits taxed?

Your Social Security benefits may be subject to federal income tax if your combined income exceeds $25,000 (single) or $32,000 (married filing jointly). Combined income includes your benefits plus other income like wages, pensions, and investment earnings. Up to 85% of your benefits can be taxable depending on your total income.

What if I made a mistake on my Social Security earnings record?

Contact Social Security when ready with documentation like old W-2 forms or tax returns. Errors in your earnings record can lower your benefit amount. You have a limited time to correct errors, so address them as soon as you notice them by calling Social Security or visiting your local office.