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No limit to Medicare taxes
Dear Tax Talk:
Is there a cutoff (like Social Security) where Medicare is not taken
out of an employee's pay?
It used to be that Social Security and Medicare were applied to
the same wage base limit. The law was changed starting in 1991 so
that Medicare cut out at a higher limit. In 1994, the law changed
to eliminate a maximum wage base for Medicare.
Social Security is withheld from an employee at the
rate of 6.2 percent on the first $84,900 in earnings from the same
employer in 2002. Medicare tax is withheld at the rate of 1.45 percent
on all wages without a limit. The employer matches the contributions.
individual pays double these rates on their net earnings from
self-employment. A self-employed individual can deduct one-half
of the self-employment tax in computing taxable income; an employee
gets no deduction. When an individual retires, up to 85 percent
Security benefits are taxable depending on other income; Medicare
benefits are not taxable.
Although an employee cannot avoid the Medicare tax,
a self-employed individual can effectively cap the limit by incorporating.
This makes some sense to a self-employed individual as it represents
an almost 3 percent tax savings.
-- Posted: Aug. 13, 2002