What you actually pay in payroll tax

Your payroll tax rate depends on your income and filing status, and it changes every year. For 2024, the Social Security tax rate is 6.2% of your wages (your employer pays another 6.2%), and Medicare tax is 1.45% (your employer matches that too). If you earn over a certain threshold — $200,000 for single filers, $250,000 for married filing jointly — you pay an additional 0.9% Medicare tax on the amount above that threshold, and your employer does not match it.

These percentages are federal and apply to everyone. What changes is how much of your income is actually subject to these taxes. Social Security tax only applies to the first $168,600 of your wages in 2024 (this cap increases most years). Medicare tax has no income cap — it applies to every dollar you earn.

Self-employed people pay both the employee and employer portions, which means 12.4% for Social Security (on income up to the cap) and 2.9% for Medicare, plus the additional 0.9% Medicare tax if they exceed the income thresholds. You can deduct half of your self-employment tax when you file your tax return, which reduces your taxable income but not the amount you owe upfront.

Key Takeaways

  • Social Security tax is 6.2% of your wages up to $168,600 (2024), and Medicare tax is 1.45% of all wages, with no income limit.
  • If you earn over $200,000 (single) or $250,000 (married filing jointly), you pay an additional 0.9% Medicare tax on the excess income.
  • Your employer pays matching amounts for Social Security and Medicare, except for the additional 0.9% Medicare tax on high earners.
  • Self-employed workers pay both employee and employer portions, totaling 15.3% for Social Security and Medicare combined, but can deduct half when filing taxes.
  • The Social Security wage cap increases most years based on inflation, while Medicare tax has no cap.

How the Social Security wage cap works

The Social Security wage cap is the maximum amount of your annual income subject to Social Security tax. In 2024, that cap is $168,600. If you earn $200,000 a year, you only pay Social Security tax on the first $168,600 — the remaining $31,400 is not subject to that tax.

This cap exists because Social Security benefits are tied to your earnings record, and there is a maximum benefit amount. The cap increases most years to keep pace with wage growth. For example, the 2023 cap was $160,200, and the 2024 cap is $168,600. You can find the current year's cap on the Social Security Administration website or on your pay stub.

High earners benefit from this cap because they stop paying Social Security tax partway through the year, while lower-income workers pay it on every dollar they earn. A person making $50,000 pays Social Security tax on all of it; a person making $500,000 pays it only on the first $168,600.

Medicare tax has no income limit

Unlike Social Security, Medicare tax applies to every dollar you earn, no matter how much you make. There is no wage cap. This means a person earning $1 million a year pays Medicare tax on the full $1 million, at 1.45% for the employee portion.

The additional 0.9% Medicare tax kicks in only for high earners. If you are single and earn over $200,000, you pay an extra 0.9% on the amount above $200,000. If you are married filing jointly, the threshold is $250,000. If you are married filing separately, it is $125,000. Your employer does not pay this additional tax — it comes entirely from your paycheck.

This additional tax was introduced in 2013 as part of the Affordable Care Act. It is withheld from your paycheck automatically if your employer knows your income will exceed the threshold, but if you have multiple jobs or irregular income, you may need to adjust your withholding or pay the tax when you file your return.

How payroll tax is withheld from your paycheck

Your employer calculates and withholds payroll tax automatically based on the information you provided on your W-4 form when you were hired. The W-4 tells your employer how much to withhold for federal income tax, but payroll tax (Social Security and Medicare) is withheld at the fixed rates — 6.2% and 1.45% — regardless of what you put on your W-4.

You can see the exact amounts withheld on your pay stub. Look for lines labeled "Social Security" or "OASDI" (Old-Age, Survivors, and Disability Insurance) and "Medicare" or "Med." The amounts should match 6.2% and 1.45% of your gross pay, unless you have already hit the Social Security wage cap for the year.

If you earn over the high-earner thresholds, your employer should also withhold the additional 0.9% Medicare tax. If you have multiple jobs and your combined income exceeds the threshold, you may overpay this tax during the year and reclaim it when you file your return — your employer at each job does not know about your other income.

Self-employed payroll tax calculations

If you are self-employed, you pay self-employment tax instead of having an employer withhold it. Self-employment tax covers both the employee and employer portions of Social Security and Medicare. For 2024, that is 12.4% for Social Security (on net income up to $168,600) and 2.9% for Medicare (on all net income), plus the additional 0.9% Medicare tax if you exceed the income thresholds.

You calculate self-employment tax on your net profit — your business income minus business expenses — not your gross revenue. You report this on Schedule SE when you file your tax return. The calculation can be complex if your income fluctuates or if you have both self-employment income and W-2 wages from another job.

The good news is that you can deduct half of your self-employment tax as a business expense on your tax return, which lowers your taxable income. This partially offsets the fact that you are paying both the employee and employer portions. You still owe the full amount upfront, though — the deduction only reduces your income tax liability, not the self-employment tax itself.

What happens when you change jobs mid-year

If you change jobs during the year, your Social Security tax withholding resets at each employer. Each employer calculates the 6.2% based on what you earn at that job, without knowing what you earned at your previous job. This means you could overpay Social Security tax if your combined income from both jobs exceeds the wage cap.

For example, if you earn $100,000 at Job A and then move to Job B where you earn $80,000, you will pay Social Security tax on both amounts — $180,000 total — even though the cap is $168,600. You will overpay by $1,488 (6.2% of the $24,000 over the cap). You can claim this overpayment as a credit on your tax return when you file.

Medicare tax does not have this problem because there is no wage cap. Your employers will withhold the correct amount regardless of how many jobs you have, unless your combined income exceeds the high-earner thresholds, in which case you may need to adjust your withholding or settle the additional tax at tax time.

How to check if your payroll tax is correct

Review your pay stub each time you are paid. Check that the Social Security and Medicare amounts match the rates — 6.2% and 1.45% of your gross pay. If you have already hit the Social Security wage cap, Social Security tax should stop appearing on your pay stub for the rest of the year, but Medicare tax should continue.

If you notice an error — such as Social Security tax still being withheld after you have hit the cap, or the wrong percentages being used — contact your employer's payroll department immediately. Errors are usually corrected quickly, and your employer is responsible for fixing them.

At the end of the year, your employer sends you a W-2 form showing your total wages and total payroll tax withheld. Compare this to your own records. If you had multiple jobs, add up the Social Security tax from all your W-2s — if it exceeds the maximum (6.2% of $168,600, or $10,453.20 in 2024), you can claim the overpayment on your tax return.

Frequently Asked Questions

Do I pay payroll tax on tips and bonuses?

Yes. Tips and bonuses are treated as wages and are subject to both Social Security and Medicare tax at the same rates as your regular pay. Tips must be reported to your employer, and bonuses are automatically included in your gross pay. Both count toward the Social Security wage cap.

What if I am a contractor instead of an employee?

Contractors do not have payroll tax withheld by the person or company paying them. Instead, you are responsible for calculating and paying self-employment tax on your net profit when you file your tax return. You will receive a 1099 form instead of a W-2, and you must set aside money throughout the year to cover these taxes.

Can I reduce my payroll tax by changing my W-4?

No. Your W-4 only affects federal income tax withholding, not payroll tax. Social Security and Medicare tax are withheld at fixed rates regardless of what you claim on your W-4. The only way to reduce payroll tax is to earn less income or to use pre-tax deductions like a 401(k) or health savings account, which reduce your taxable wages.

What if I earn income from multiple sources?

Each source of income is taxed separately for payroll purposes. If you have a W-2 job and self-employment income, you pay payroll tax on both. Your W-2 employer withholds Social Security and Medicare tax, and you pay self-employment tax on your net self-employment income when you file your return. Your combined income may push you into the additional 0.9% Medicare tax bracket.

Do I pay payroll tax on unemployment benefits?

No. Unemployment benefits are not subject to Social Security or Medicare tax. However, they are subject to federal income tax, which is withheld if you request it. Some states also tax unemployment benefits for state income tax purposes.