Federal payroll taxes are fixed percentages of your wages, split between you and your employer

Federal payroll taxes consist of two parts: Social Security and Medicare. As an employee, you pay 6.2% of your gross wages toward Social Security and 1.45% toward Medicare. Your employer pays the same amounts on your behalf. If you are self-employed, you pay both the employee and employer portions, which totals 15.3% for these two taxes combined.

These percentages apply to nearly all wages you earn, with some narrow exceptions. The Social Security portion stops once you hit an annual wage cap — in 2024, that cap is $168,600, meaning you do not pay the 6.2% on earnings above that amount. Medicare has no wage cap, so you pay 1.45% on all wages no matter how high your income goes.

There is also an additional Medicare tax of 0.9% that applies only to high earners. If you earn more than $200,000 as a single filer (or $250,000 if married filing jointly), you owe this extra 0.9% on the amount above the threshold. Your employer does not match this additional tax — you pay it alone.

Key Takeaways

  • You pay 6.2% for Social Security and 1.45% for Medicare on your wages; your employer pays the same amounts.
  • Social Security tax stops once you earn $168,600 in a calendar year, but Medicare tax continues on all wages.
  • High earners pay an additional 0.9% Medicare tax on income above $200,000 (single) or $250,000 (married filing jointly).
  • Self-employed people pay both the employee and employer share, totaling 15.3% for Social Security and Medicare combined.
  • Your employer withholds these taxes from your paycheck automatically; you see the deduction on your pay stub.

How the Social Security wage cap works

The Social Security tax rate of 6.2% applies only to wages up to a certain limit each year. In 2024, that limit is $168,600. Once you earn that amount in a calendar year, your employer stops withholding the 6.2% Social Security tax from your remaining paychecks for that year.

This cap changes annually. The Social Security Administration adjusts it based on average wage growth in the economy. If you change jobs mid-year, each employer withholds Social Security tax based on what you earn at that job alone — they do not know what you earned elsewhere. If your total wages from all jobs exceed the cap, you may have overpaid Social Security tax. You can claim a refund of the overpayment when you file your federal income tax return.

Self-employed people track their own Social Security tax liability. If you have self-employment income from multiple sources, you are responsible for calculating whether your total income exceeds the cap and adjusting your payments accordingly.

Medicare tax has no wage limit

Unlike Social Security, Medicare tax continues on every dollar you earn, no matter how much you make. You pay 1.45% of all your wages toward Medicare, and your employer pays another 1.45%. There is no annual cap that stops the withholding.

The additional 0.9% Medicare tax applies only to high earners and is withheld by your employer once your wages cross the threshold for your filing status. If you are single, this kicks in at $200,000. If you are married filing jointly, it starts at $250,000. Married filing separately has a $125,000 threshold. Your employer withholds this additional tax automatically once you cross the threshold in a given year.

If you have multiple jobs and your combined wages trigger the additional Medicare tax, you may need to adjust your withholding or make estimated payments to avoid owing a large amount at tax time. The IRS Form W-4 allows you to request extra withholding if needed.

What self-employed people owe

If you are self-employed, you pay both the employee and employer portions of Social Security and Medicare taxes through self-employment tax. This totals 15.3%: 12.4% for Social Security (the combined 6.2% + 6.2%) and 2.9% for Medicare (the combined 1.45% + 1.45%), plus the additional 0.9% Medicare tax if your income is high enough.

You calculate self-employment tax on your net self-employment income — your business income minus business expenses — using Schedule SE when you file your tax return. You can deduct half of your self-employment tax as an adjustment to income, which reduces your taxable income slightly.

Self-employed people make quarterly estimated tax payments to cover both income tax and self-employment tax. If you do not pay enough throughout the year, you may owe a penalty when you file. Many self-employed people work with a tax professional or use tax software to calculate the correct quarterly amounts.

How payroll tax withholding appears on your pay stub

Your employer withholds federal payroll taxes from each paycheck automatically. On your pay stub, you will see separate line items for Social Security tax and Medicare tax. The amount withheld depends on your gross pay for that period and whether you have hit the Social Security wage cap for the year.

Your employer also withholds federal income tax, which is separate from payroll taxes. Income tax withholding is based on the W-4 form you completed when you started the job. Payroll taxes, by contrast, are fixed percentages with no choice involved — they are withheld the same way for everyone.

If you want to verify the amounts are correct, you can check your Social Security statement online at ssa.gov. This statement shows your earnings history and the payroll taxes you have paid over your lifetime. It updates once a year, usually in September.

Payroll taxes versus income tax

Payroll taxes and federal income tax are two separate deductions from your paycheck. Payroll taxes fund Social Security and Medicare and are fixed percentages (6.2% + 1.45% for most workers). Federal income tax is withheld based on your W-4 and varies depending on your income, filing status, and the number of dependents you claim.

Payroll taxes have wage caps and income thresholds; income tax does not. You pay payroll taxes on nearly all wages, but income tax withholding can be zero if your income is low enough. Conversely, you can owe income tax even if you have no payroll tax liability (for example, if you have investment income).

Both are withheld by your employer and sent to the federal government. Both appear on your pay stub as separate line items. When you file your tax return, the amounts withheld are credited against your total tax liability for the year.

State and local payroll taxes

In addition to federal payroll taxes, many states and some cities withhold their own payroll taxes. These are separate from federal Social Security and Medicare taxes and vary widely by location.

Some states have no income tax at all (such as Texas, Florida, and Nevada), so they do not withhold state payroll tax. Other states withhold a percentage of your wages for state income tax, and a few states also have their own disability or family leave insurance programs that withhold small percentages. New York City, for example, withholds a city income tax in addition to state and federal taxes.

Your pay stub will show all withholdings — federal, state, and local — as separate line items. If you move to a different state during the year, your employer updates your withholding based on your new state's rules.

Frequently Asked Questions

What happens to the payroll taxes I pay?

Social Security tax funds retirement, disability, and survivor benefits for workers and their families. Medicare tax funds hospital insurance and medical coverage for people age 65 and older, as well as some younger people with disabilities. These are not savings accounts in your name — they are pay-as-you-go programs where current workers' taxes fund current beneficiaries' benefits.

Can I opt out of paying payroll taxes?

No. Payroll taxes are mandatory for nearly all employees and self-employed people. The only narrow exceptions are certain religious groups that have received IRS approval and some government employees hired before specific dates. If you are a regular employee, you cannot opt out.

Do I get a refund if too much payroll tax was withheld?

For Social Security tax, yes — if you overpaid because you had multiple jobs and your combined wages exceeded the cap, you can claim a refund on your tax return. For Medicare tax, overpayment is rare but can happen if you had multiple employers; you can also claim a refund. For the additional 0.9% Medicare tax, you claim any overpayment on your return if you had multiple employers.

How much payroll tax will I pay this year?

If you earn $60,000 as a regular employee, you will pay $3,720 in Social Security tax (6.2%) and $870 in Medicare tax (1.45%), totaling $4,590. Your employer pays the same amount. If you are self-employed with $60,000 in net income, you pay $8,478 in self-employment tax (15.3% of your net income).

What if I disagree with the payroll tax amount on my pay stub?

Check your pay stub against your gross wages and the current tax rates. Verify that your employer stopped withholding Social Security tax once you hit the $168,600 cap (if applicable). If the amounts do not match, ask your employer's payroll department to review the calculation. You can also contact the IRS at 1-800-829-1040 if you believe there is an error.