Payroll tax is money taken from your paycheck to fund Social Security and Medicare

Payroll tax is the amount your employer withholds from your wages each pay period. It funds two federal programs: Social Security (retirement, disability, and survivor benefits) and Medicare (health insurance for people 65 and older, and some younger people with disabilities). The money does not go into a personal account with your name on it — it goes into a federal trust fund that pays current beneficiaries.

You see payroll tax listed on your pay stub as "FICA" or "Social Security tax" and "Medicare tax." Your employer also pays an equal amount on your behalf, though you do not see that deducted from your check. Together, these make up the full payroll tax burden.

Key Takeaways

  • Payroll tax funds Social Security and Medicare, not a personal savings account, and is withheld automatically from every paycheck.
  • The current rate is 6.2% for Social Security and 1.45% for Medicare, taken from your wages, plus an equal amount paid by your employer.
  • Self-employed people pay both the employee and employer portions, totaling 15.3% for Social Security and Medicare combined.
  • You must work and pay payroll tax for a certain number of years to become may be able to access for Social Security and Medicare benefits later.
  • Payroll tax is separate from income tax — both are withheld from your paycheck, but they fund different programs and use different rates.

How much payroll tax comes out of your paycheck

The Social Security portion is 6.2% of your gross wages, up to a maximum amount each year. In 2024, that maximum is $168,600 of income — meaning once you earn that much in a calendar year, no more Social Security tax is withheld. This cap changes annually based on wage growth.

The Medicare portion is 1.45% of your gross wages with no income cap. Everyone pays it on every dollar earned. High earners (over $200,000 for single filers, $250,000 for married filing jointly) pay an additional 0.9% Medicare tax on income above those thresholds.

Your employer withholds these amounts automatically. You do not have to do anything — it happens before you receive your paycheck. The total comes to 7.65% of your wages for most workers, though high earners pay slightly more.

What your employer pays on top of what you pay

Your employer pays a matching amount: 6.2% for Social Security and 1.45% for Medicare. This is a real cost to the employer, but it does not appear on your pay stub because it is not deducted from your wages. The employer sends both your portion and their portion to the federal government.

Self-employed people do not have an employer to split the cost, so they pay the full 15.3% themselves (12.4% for Social Security, 2.9% for Medicare). They can deduct half of this as a business expense on their tax return, but they still pay the full amount upfront.

Why payroll tax is different from income tax

Payroll tax and income tax are two separate withholdings on your paycheck. Income tax is based on your tax bracket and filing status, and the money goes to the general federal treasury to fund government operations. Payroll tax is a flat percentage that goes specifically to Social Security and Medicare trust funds.

You can see both on your pay stub. Income tax withholding varies depending on how you fill out your W-4 form. Payroll tax withholding is automatic and the same for everyone at the same income level — it does not change based on personal circumstances or deductions.

How payroll tax connects to your future benefits

Paying payroll tax builds your record of work history. To receive Social Security retirement benefits, you must have worked and paid Social Security tax for at least 10 years (40 quarters). The amount of your benefit is based partly on how much you earned during your working years — higher earners who paid more in payroll tax receive higher benefits.

Medicare coverage at age 65 also requires a work history, though the rules are slightly different. If you do not have enough work history, you may still get Medicare if your spouse or ex-spouse does, but your own payroll tax record is what counts first.

Payroll tax is not a savings account. The money you pay in today goes to people receiving benefits now. When you retire, future workers' payroll taxes will fund your benefits. This is why the system is called "pay-as-you-go."

What happens if you do not pay payroll tax

If you work for an employer, payroll tax is withheld automatically — you cannot opt out. If you work under the table or in cash without reporting income, you are not paying payroll tax and you are not building work history toward Social Security or Medicare.

This has real consequences. Years without payroll tax contributions count as zero-earning years in your Social Security record, which lowers your eventual benefit amount. You also will not be may be able to access for Medicare at 65 unless you have enough may have access to years of work.

Employers who do not withhold and pay payroll tax on their workers face penalties and back taxes. Workers who knowingly work off the books are also responsible for paying the tax they owe if discovered.

Frequently Asked Questions

Can I get my payroll tax back if I do not use Social Security or Medicare?

No. Payroll tax is mandatory for all workers and employers. You cannot opt out or get a refund based on whether you use the programs. Even if you never claim Social Security or Medicare benefits, the tax is still withheld from your paycheck.

What if I work multiple jobs — do I pay payroll tax on all of them?

Yes, you pay Social Security and Medicare tax on all wages from all jobs. However, the Social Security tax cap applies to your total income across all jobs in a year. If you overpay Social Security tax because you hit the cap at one job and then earn more at another, you can claim the overage as a credit on your tax return.

Do independent contractors pay payroll tax?

Independent contractors and self-employed people pay self-employment tax, which is the same rate as payroll tax (15.3% combined) but they pay both the employee and employer portions themselves. They report this on Schedule SE of their tax return and send it to the IRS along with their income tax.

Does payroll tax count toward my income tax?

No. Payroll tax and income tax are separate. Payroll tax withheld from your paycheck does not reduce the income tax you owe. However, if you overpay income tax during the year, you get a refund; the same applies to payroll tax overpayment in certain situations, like working multiple jobs.

What if I am not a U.S. citizen — do I still pay payroll tax?

If you work legally in the United States with a valid work visa or green card, you pay payroll tax like any other worker. Undocumented workers who work and have taxes withheld also pay payroll tax, though they may not be may be able to access for benefits. Some visa holders have different rules — check with your visa sponsor or an immigration attorney for your specific situation.