Payroll Tax Continues If Working After Retirement

Q: My mom is 67 years old and receives Social Security retirement. She also works part-time and noticed that Medicare is taken out of both her paycheck and Social Security benefit. She is wondering why.

A: Two different issues are involved. The Medicare Part B (Medical Insurance) monthly premium is routinely deducted from Social Security benefits. Medicare Part A (Hospital Insurance) does not have a monthly premium. General Medicare information is on the Social Security website at www.socialsecurity.gov/medicare/.

Payroll taxes (FICA) to help fund the Social Security and Medicare programs are deducted from employment earning with employees and employers each paying 7.65 percent of taxable earnings. Of this, 1.45 percent goes to Medicare and the remainder to fund Social Security retirement, survivors and disability benefits. The self-employed pay the equivalent of both employee and employer payroll tax portions.

Payroll taxes apply regardless of age even if the person receives Social Security benefits or has Medicare coverage. Adjusted annually, in 2016 the highest amount of earnings on which Social Security payroll tax must be paid is $118,500. There is no maximum earnings amount for Medicare tax so it is paid on all employment earnings.

New work activity is automatically reviewed each year to see if it can increase your retirement amount. See the booklet “How Work Affects Your Benefits” for more information. Once past full retirement age the annual earnings test no longer applies.

The Medicare Part B premium amount varies based on income and when coverage began. Details are on the official Medicare website, www.medicare.gov. From the homepage, go to the “Your Medicare Costs” sections for details.