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Medicare is funded in part by payroll taxes – also called Medicare taxes. However, not all government employees pay these taxes on all their wages. Only those that were hired after March 31, 1986 do. They are called Medicare-qualified government employees.
Sounds a little confusing? Don’t worry because we will make it easy for you.
In today’s article, we’ll break down what Medicare-qualified government wages mean in great detail. We’ll also discuss who qualifies for these wages and how they affect Medicare taxes. So, let’s dive in!
What is Medicare tax?
Medicare helps thousands of seniors and disabled individuals access quality healthcare services. To pay for it, the US government charges a Medicare tax from all employees – regardless of whether they work in the private or public sector.
In 2024, this is a 1.45% tax on an annual income of $200,000 or less. People who earn more than $200,000 per year pay an additional 0.9% tax on their income (so the total tax is 2.35%). The remaining 1.45% tax is paid by the employer.
So, the total Medicare tax is 2.9% in 2024. This percentage is split equally (1.45%) between the employee and employer, with high-income earners paying an extra 0.9%.
Who is a Medicare-qualified government employee?
It doesn’t matter whether you are a local, state, or federal-level government worker. If you were hired after March 31, 1986, you will be called a Medicare-qualified government employee (MQGE).
This is because you must pay the Medicare tax – but not the Social Security tax.
Only private sector employees have to pay both Medicare and Social Security taxes on their annual income. This is a combined rate of 7.65% to 8.55% and is called the FICA tax.
However, since MQGEs don’t pay the Social Security tax, they don’t receive Social Security benefits after retirement. Instead, they can enroll in the following programs:
- Federal Employee Health Benefits Program
The Federal Employee Health Benefits (FEHB) program is available for current and retired government workers. It includes a variety of health insurance plans with different coverage, benefits, and costs.
- Medicare
When a government employee turns 65, they are eligible for Medicare – even if they are currently benefiting from the FEHB program. However, most retirees prefer Medicare Part A only.
This is because once you have worked 40 quarters, Medicare Part A’s monthly premium is waived off by the government. So, you only have to pay the annual deductible ($1632 in 2024) and the fixed copayments for inpatient healthcare services.
People who have worked less than 40 quarters can also enroll in Medicare, but their Part A premium won’t be free. If you have worked between 30 to 40 quarters, the monthly fee will be $278 in 2024. For less than 30 quarters, you pay the full premium of $505.
IMPORTANT: Government employees who were hired before or on March 31, 1986, are not Medicare-qualified employees. They belong to the qualifying public retirement system and so, they don’t pay Medicare tax. Learn about it here.
What are Medicare-qualified government wages?
Medicare-qualified government wages refer to the taxable income. In simple terms, it is the earnings of MQGEs that can be taxed to pay for the Medicare system. This includes your salary, overtime pay, bonuses, and any other monetary compensation offered by your employer.
In 2024, the national average Medicare-qualified government wage is $66,570 a year. However, the exact pay depends on the position and experience.
For example, a new customs officer can earn as low as $33,699 — whereas an experienced one earns as high as $109,885. You can also get higher wages depending on the state and its local economic conditions.
Who is eligible for Medicare-qualified wages?
All government employees who were hired after March 31, 1986, are eligible for Medicare-qualified wages. This is because they automatically qualify as a Medicare-qualified employee, who must pay the Medicare tax.
However, there are a few exceptions that aren’t eligible for these wages:
- Part-time workers like emergency relief personnel
- Prisoners working for wages while in confinement
- Patients in institutional or hospital care engaged in employment arranged by their residing facility
- University students employed by their attending institutions
- Poll workers earning an annual salary under $1,500
- Foreign nationals who are non-residents and have specific visa types
These individuals will receive their full wages and won’t be taxed by the government. If you are unsure about being a Medicare-qualified government employee, you can always talk to the recruiter and confirm the status.
Do teachers get Medicare-qualified government wages?
Yes, teachers get Medicare-qualified government wages – if they are employed in public schools and academic institutes.
The same Medicare tax rate (1.45%) will apply to them as other government employees. Since the teacher is employed by the government, the tax amount will be deducted directly from their paycheck.
In 2024, the average income of government teachers in the US is $54,728 a year. This makes a monthly salary of $4,561. From this, you will be paying $66 for Medicare tax.
If you wish to get a more detailed breakdown of your government job income, try this paycheck calculator tool.
Last words
To sum it up, knowing about Medicare-qualified government wages is really important for public workers and anyone dealing with Medicare taxes. These wages are annual or monthly incomes that can be taxed.
They help determine how much you pay for Medicare, which affects your money and how Medicare gets funded. So, if you are a government employee hired after 31 March 1986, make sure to find out what your Medicare-qualified wage is.
Sources:
https://about.usps.com/postal-bulletin/2023/pb22615/html/info_002.htm
Article updated on January 17, 2024.
