The payroll tax rate that comes out of your paycheck

The amount withheld from your paycheck for federal payroll taxes is 15.3 percent of your gross wages, split between you and your employer. You pay 7.65 percent directly — 6.2 percent for Social Security and 1.45 percent for Medicare. Your employer pays the other 7.65 percent on your behalf, though you do not see it on your pay stub.

This 15.3 percent is a fixed rate set by federal law. It applies the same way whether you earn $30,000 or $300,000 per year, with one exception: Social Security tax stops once you reach a wage cap. In 2024, that cap is $168,600, meaning once you earn that much in a year, no more Social Security tax is withheld from your remaining paychecks. Medicare tax has no cap and continues on all wages.

State and local payroll taxes vary by location and are separate from the federal rate. Some states add income tax withholding on top of the federal amount. Others, like Texas and Florida, do not have state income tax at all. Your pay stub will show all withholdings broken down by type.

Key Takeaways

  • You pay 7.65 percent of your gross wages in federal payroll taxes: 6.2 percent for Social Security and 1.45 percent for Medicare.
  • Your employer pays an equal 7.65 percent on your behalf, bringing the total cost to employers and workers combined to 15.3 percent.
  • Social Security tax stops once you earn $168,600 in a calendar year, but Medicare tax continues on all wages with no upper limit.
  • State and local payroll taxes are added on top of federal rates and vary depending on where you live and work.

How the 7.65 percent breaks down between Social Security and Medicare

The 7.65 percent you pay is divided into two separate programs. Social Security takes 6.2 percent of your wages, and Medicare takes 1.45 percent. Both are withheld automatically from every paycheck if you are a W-2 employee.

Social Security tax funds retirement, disability, and survivor benefits. The money you pay in now goes to current retirees and disabled workers, and your own Social Security account builds based on your earnings history. Medicare tax funds hospital insurance (Part A) for people age 65 and older, as well as some younger people with disabilities or end-stage renal disease.

These two programs operate independently. You cannot choose to pay one and not the other, and the rates do not change based on your age or how long you have worked. The only variable is the wage cap on Social Security, which adjusts each year based on national wage growth.

Why your employer pays half and what that means for you

Federal law requires employers to pay 7.65 percent in payroll taxes on your behalf. This is not money you earn or receive — it is a cost employers bear as part of hiring you. The employer portion does not appear on your pay stub because it never touches your account.

From a practical standpoint, the employer contribution is part of your total compensation cost to the company. Some economists argue this affects wages: if an employer's total cost for you is your salary plus 7.65 percent in taxes, they may offer lower wages than they would if payroll taxes did not exist. However, you do not have a choice to waive the employer contribution or receive it as additional pay.

Self-employed people and business owners pay both halves themselves — 15.3 percent total — because they are both the employee and the employer. They can deduct half of this amount (7.65 percent) when filing taxes, which provides some offset.

The Social Security wage cap and why it matters

In 2024, Social Security tax stops being withheld once you earn $168,600 in a calendar year. This means if you earn $200,000, you pay Social Security tax only on the first $168,600 and nothing on the remaining $31,400. The cap changes every year based on average wage growth in the economy.

Medicare tax has no wage cap. You pay 1.45 percent on every dollar you earn, no matter how high your income goes. Additionally, if you earn over $200,000 as a single filer (or $250,000 if married filing jointly), an extra 0.9 percent Medicare tax is withheld on the amount above that threshold. This additional tax was added in 2013 and applies to high earners only.

The wage cap means higher earners pay a smaller percentage of their total income in Social Security tax. Someone earning $168,600 pays 6.2 percent on all of it. Someone earning $336,000 pays 6.2 percent only on the first $168,600, which is 3.1 percent of their total income. This is why Social Security is sometimes described as a regressive tax at higher income levels.

State and local payroll taxes on top of federal withholding

Most states add their own income tax withholding to your paycheck. The rate varies widely — from around 2 percent in some states to over 13 percent in others. A few states have no income tax at all: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming. New Hampshire and Tennessee tax only investment income, not wages.

Some cities and counties also withhold local income tax. New York City, for example, adds roughly 3.9 percent for city residents. Columbus, Ohio adds about 2.1 percent. These local taxes are separate from state taxes and stack on top of them.

Your pay stub will itemize all withholdings: federal income tax, Social Security, Medicare, state income tax, and any local taxes. The total amount withheld depends on your location, your income level, and the W-4 form you filled out when you were hired. If you work in one state but live in another, your employer typically withholds based on where you work.

How payroll tax rates compare to income tax withholding

Payroll taxes (Social Security and Medicare) are different from federal income tax withholding, though both come out of your paycheck. Payroll taxes are a fixed percentage: 7.65 percent. Income tax withholding is variable and depends on your W-4 form, your income level, and your filing status.

Income tax withholding is calculated so that by the end of the year, the amount withheld roughly matches what you owe in federal income tax. If you claim zero dependents on your W-4, more is withheld. If you claim more dependents, less is withheld. Payroll taxes do not work this way — they are the same percentage every paycheck, and you cannot adjust them with a form.

When you file your tax return in April, you may get a refund if too much income tax was withheld, or you may owe if too little was withheld. Payroll taxes are not refundable in the same way. The money you pay into Social Security and Medicare is credited to those programs and cannot be recovered as a tax refund.

What happens if you are self-employed or a contractor

If you are self-employed or work as an independent contractor, you pay both the employee and employer portions of payroll taxes yourself. This means you pay 15.3 percent total on your net self-employment income, rather than the 7.65 percent a W-2 employee pays.

Self-employed people file Schedule SE with their tax return to calculate self-employment tax. The calculation is based on your net profit from self-employment, not your gross revenue. You can deduct business expenses first, then calculate the tax on what remains. You are also allowed to deduct half of your self-employment tax (7.65 percent) as an adjustment to income, which reduces your taxable income.

Self-employed individuals must make quarterly estimated tax payments if they expect to owe $1,000 or more in taxes for the year. These payments cover both income tax and self-employment tax. Failure to make quarterly payments can result in penalties and interest, even if you pay the full amount when you file your return.

Frequently Asked Questions

Does payroll tax come out before or after my other deductions?

Payroll taxes are withheld from your gross pay before most other deductions. However, certain pre-tax deductions like health insurance premiums and 401(k) contributions are taken out before payroll taxes are calculated. This reduces the amount of wages subject to Social Security and Medicare tax. Post-tax deductions like garnishments happen after payroll taxes.

Can I opt out of paying payroll taxes?

No. Payroll taxes are mandatory for all W-2 employees and self-employed people. The only exception is certain religious groups that have received an exemption from the IRS, which is rare and requires specific approval. You cannot choose to skip Social Security or Medicare tax withholding.

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

Yes, you pay 7.65 percent on wages from each job. However, if your combined earnings exceed the Social Security wage cap, you may overpay Social Security tax. You can claim a credit for the overpayment when you file your tax return. Medicare tax is withheld on all jobs with no cap, so there is no overpayment issue with Medicare.

Why is payroll tax called FICA?

FICA stands for the Federal Insurance Contributions Act, the law that created Social Security and Medicare taxes in 1935 and 1965. You will see "FICA" on your pay stub next to the Social Security and Medicare withholdings. It is simply the legal name for these payroll taxes.

Do I get payroll taxes back when I file my return?

Social Security and Medicare taxes are not refundable. The money you pay in is credited to those programs and stays there. You may get a refund of federal income tax if too much was withheld, but payroll taxes work differently — they are fixed contributions to Social Security and Medicare accounts.