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Do You Pay Medicare Taxes While Receiving Medicare Benefits?

Copyright © 2014 AARP. All rights reserved.

This question is asked quite frequently: “I’m over 65 and still working, but I’m enrolled in Medicare. Should my employer still be deducting Medicare payroll taxes from my earnings?”

Yes, indeed. The law requires you to pay Medicare taxes on all your earnings for as long as you continue to work — regardless of whether you’re already receiving Medicare benefits.

Sometimes the exact reverse of the preceding question is asked: “I’m 60, and my employer recently quit taking Medicare and Social Security out of my wages. Should this be happening?”

No, absolutely not! Failing to pay these taxes can jeopardize your benefits in later years. But it’s not an uncommon situation. “Sometimes employers stop withholding tax from employees’ wages under the mistaken notion that they can choose to treat employees as independent contractors,” IRS officials have said.

“Employee misclassification is a serious problem that can result in penalties against the business.” Yet misclassification can make a big difference to your income. If you’re an employee, your employer must by law pay half of your Medicare and Social Security payroll taxes. If you’re an independent contractor, your share is much more.

The IRS says that if you’re an employee who believes you’re being incorrectly treated as an independent contractor, you should file Form SS-8, Determination of Worker Status for Purpose of Federal Employment Taxes and Income Tax Withholding. An employer can also file this form to clarify how a worker should be classified. Form SS-8 is available online.

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