Saturday, August 10, 2013

Why is Medicare going broke?

Earlier this year as I was filling out the 2013 941 payroll form. This is a report that is applicable if you operate a business and have employees working for you, then you need to file IRS Form 941, also named Employer’s Quarterly Federal Tax Return.  As an employer, you are responsible for withholding federal income tax and other payroll taxes, one of which is medicare tax, from each employee’s paycheck and remitting it to the IRS. Each Form 941 you file reports the total amount of tax you withheld during the quarter, it reconciles how much you paid during the quarter versus the amount you should of withheld and the difference is either an amount due or a refund. The refund can be applied to the next quarter or remitted to the employer.
Well enough of that, I just wanted to give you some understanding of the 941 form so that you can understand my points to follow. Employees and employers pay both 7.65% of wages earned as to the IRS for both social security and medicare tax. 6.2% out of that goes to the social security fund and 1.45% goes to the medicare fund. Also what is needed to mention is that these payroll taxer have a cap to them.  If your wages are greater than an amount, then you would of paid the maximum and no more was taken out of your pay.  Years ago payroll tax namely social security and medicare tax, was not separated out it was called FICA and all of the 7.65% (when I say 7.65% it is 7.65% for each employee and employer) went to one fund.

At first when they separated out the two the threshold was the same amount, for example $80,000.  Once your wages met that amount no more was withheld. However, a few years ago the medicare threshold was entirely removed.  Now there is no more cap when it comes to medicare. So now you can make infinite amount and you will still be paying taxes to the medicare system. 
New for tax year 2013, because that tacit was insufficient to sustain the medicare system, the IRS is requiring that wages earners that make over $200,000 pay an additional 0.9% for a total of 2.35%. This kicks in once your past the threshold of $200,000. So get this, before high income earners would get a reprieve once they passed a wage amount. Now, when it comes to medicare, they never get a reprieve, and to make things worse they have to pay additional medicare tax once they pass an amount. Now you can say well these people are making a lot of money and they "should pay their fair share". I say that is a 62% rate increase as you pass $200,000. That is after the unlimited threshold amount that was forced upon them not too long ago. I also think to myself, that the game has changed during midstream and people did not sign up for that when these programs first came into existence.
So why are these entitlements out of whack?  The biggest reason why I think these programs look bleak going forward is that, to put it simply, things have changed.  When these programs were created, social security almost 100 years ago and medicare about half that, their were certain assumptions that quite frankly today are INCORRECT.  For the government to put a finger in it like the dutch boy in the dam, is ridiculous, it lends it to be unjust and at the end of the day does not fix the problem.  But the government are just like pharmaceutical companies, they are NOT interested in fixing, just prolonging.  However that is a topic for another blog.
Looking at the forest from the trees, the rates are opposite. What I mean is that, the medicare rate should be 6.2% and the social security rate 1.45%. Why? Simple, what is going to cost more the $17,000 a person receives every year from social security or the bill to medicare for a triple bypass with all of the fixings at the hospital? This just shows the ignorance of the government and why there is NO threshold amount now and subsequently the additional tax for medicare. 
But wait don't think the story ends at the greater than $200,000 wage earners, oh no my friends.  This additional medicare is coming to a "theater near you". Get ready to have more taken out of your pay check.  Like a hurricane its heading your way. It is just simple math and right now numbers are not adding up.  How many wage earners out there are making greater than $200,000?  So I can see them start to decrease that limit until it gets down to everyone.  I said this before, when I noticed that the cap was eliminated for medicare, because you could not go past an infinite amount.  So I knew then that the rate had to increase. But a whopping 62%? Sometimes I say to myself, "I just want to get off this ride".

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