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I've been working as a hourly paid employee for a company for about a month now.

I notice that there're 'Medicare' and 'CA Disability Emplyee' taxes on my pay statement.

What are they and why do I pay them when I don't get an insurance plan from the company?

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3 Answers

up vote 4 down vote accepted

Medicare is part of the payroll taxes. Its a Federal tax used to fund the Medicare program, and is paid by both the employee and the employer (each pays 50% of the tax).

CA SDI (State Disability Insurance) is a California payroll tax used to fund the State program for disability insurance. It is a mandatory tax (deductible as State income tax), but it can be replaced with a voluntary insurance program that would provide at least the same coverage (VDI, which is non-deductible).

There's no earning cap for Medicare, there's an earnings cap ($100,880 for 2013) for SDI.

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Just to add, Medicare and Social Security tax come together (as FICA). Social Security tax also has an earnings gap. –  user102008 Jan 18 '13 at 21:45
    
No, they don't come together. These are two separate taxes. –  littleadv Jan 18 '13 at 21:59
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You are paying Medicare tax, not a health insurance premium for Medicare coverage. When you turn 65, you will be eligible for Medicare coverage (if Medicare exists or if it actually covers anything) if you have paid Medicare taxes for 40 quarters of work (I think; I am not sure). Some State Government employees who were hired before 1986 when the tax law changed do not pay Medicare taxes and are not eligible for Medicare unless covered by their spouse's Medicare payments, or by their own self-employment income or second job, etc.

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In the United States, Medicare is a national social insurance program, administered by the U.S. federal government since 1965, that guarantees access to health insurance for Americans ages 65 and older and younger people with disabilities as well as people with end stage renal disease (Medicare.gov, 2012).

http://en.wikipedia.org/wiki/Medicare_(United_States)

It is a similar thing for state disability insurance. (Likewise, unemployment insurance is a similar situation; though paid by employers.)

That money isn't going to the company. It's going to the government. You do have an insurance plan, of sorts, from the federal government for Medicare and from CA for disability.

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"You do have an insurance plan... for Medicare" It is not really insurance for current health needs for the worker aged less than 65 who is paying the Medicare tax, and the payments made today by no means guarantee that there will be any health insurance many years down the road when the worker does turn 65. –  Dilip Sarwate Jan 18 '13 at 20:07
    
@DilipSarwate Correct. Please, interpret the entire statement: You do have an insurance plan, of sorts... Technically, insurance is some form of protection against some future event. Medicare requires that those events occur after age 65, unless some conditions are met. Just because you have bought an insurance plan, does not mean that the insurance company will still be in business the next day. –  George Marian Jan 18 '13 at 20:10
    
Yes, an insurance plan is protection against some future event, and yes, the insurance company might not be in business tomorrow (or after January 21, 2017), but will anyone buy, say, life insurance from a company that does not "guarantee" what death benefit it will pay out when the insured person dies, but does specify what premium must be paid today for an unspecified benefit? –  Dilip Sarwate Jan 18 '13 at 20:56
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