Basic Yet Important Things to Know

Social Security and Medicare can be challenging to understand. Here are a few tips to help keep you informed and navigate the maze.

• In 2018, when you make $1,320 and pay FICA tax on that amount, you earn one Social Security credit. You can earn up to four credits in a year.  To qualify for retirement benefits, you need to earn 40 credits.  The amount needed to earn each credit can increase year over year based on cost of living assumptions. In 2018, a credit increased from $1,300 to $1,320 of earned income.
• Credits do not determine how much you will receive at retirement. The 35-year average of your earnings (indexed for inflation) determines your benefit amount at retirement.  The higher your income, the higher the benefits paid at retirement.
• The wage base for Social Security in 2018 is $128,400. If you make more than that amount, you do not pay Social Security FICA taxes on the excess.  This number also can increase each year based on cost of living assumptions.
• The FICA tax for Social Security is 12.4% of your income up to the wage base. You pay ½ and your employer pays ½.  If you are self-employed, you pay the entire amount.
• There is no wage base for Medicare. You pay Medicare taxes on all of your income.
• The Medicare tax in 2018 is 1.45% of your income, which is also matched by your employer. Again, if you are self-employed you pay the entire amount.
• If you have income over $200,000 as a single tax payer or income over $250,000 if you are filing joint, there is a .9% Medicare surcharge paid on all earnings over that amount. Your employer does not match the .9% Medicare surcharge.