The federal payroll tax rate is 15.3% of your wages, split between you and your employer

Payroll tax has two parts: Social Security and Medicare. Together they take 15.3% of your gross pay. You pay half (7.65%), and your employer pays the other half (7.65%). The employer portion does not come out of your paycheck — it is a separate cost to them.

What you actually see deducted from your paycheck is your half: 6.2% for Social Security and 1.45% for Medicare. If you earn $1,000 in a week, you will see about $76.50 removed for these two taxes combined.

The Social Security portion stops once you hit the annual wage cap. In 2024, that cap is $168,600. Once you earn that much in a calendar year, no more Social Security tax comes out of your remaining paychecks. Medicare tax, by contrast, has no cap — it continues on every dollar you earn for the rest of the year.

Key Takeaways

  • You pay 7.65% of your gross wages for payroll tax; your employer pays another 7.65% that you do not see.
  • Social Security is 6.2% of your pay up to an annual wage cap that changes each year.
  • Medicare is 1.45% of your pay with no annual cap, so it continues on all your earnings.
  • High earners pay an additional 0.9% Medicare tax on wages above $200,000 (single) or $250,000 (married filing jointly).

How the Social Security portion works

Social Security tax is 6.2% of your wages, but only up to a wage cap set by the government each year. The cap exists because Social Security benefits are capped — the program does not pay out unlimited benefits to high earners, so it does not tax unlimited income.

The wage cap changes annually. In 2023 it was $160,200. In 2024 it is $168,600. In 2025 it will be higher. Once you earn that amount in a calendar year, your employer stops withholding Social Security tax from your remaining paychecks for that year. If you change jobs mid-year, you may hit the cap twice — once at each employer — and you can claim the overpayment as a credit on your tax return.

Self-employed people pay both halves of Social Security tax (12.4% total) but can deduct half of it on their tax return. Employees never see the employer half, so there is nothing to deduct.

How the Medicare portion works

Medicare tax is 1.45% of your wages with no annual cap. Unlike Social Security, this tax continues on every dollar you earn, no matter how much you make. Your employer pays another 1.45%, for a total of 2.9%.

High earners pay an additional Medicare tax called the Net Investment Income Tax or the Additional Medicare Tax. If you earn over $200,000 (single filers) or $250,000 (married filing jointly), you pay an extra 0.9% Medicare tax on the amount above that threshold. This extra tax is withheld from your paycheck if you are an employee, or paid when you file your tax return if you are self-employed.

State and local payroll taxes vary widely

Federal payroll tax is the same everywhere, but many states and some cities add their own payroll taxes on top. These are separate from federal Social Security and Medicare.

Some states have no payroll tax at all — Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming do not tax wages. Other states tax wages at rates ranging from about 1% to over 13%, depending on your income level. A few states have local city taxes as well.

Your paycheck stub will show all deductions separately: federal payroll tax (Social Security and Medicare), federal income tax withholding, state income tax (if your state has one), and any local taxes. The percentage that comes out depends on where you live and work.

Self-employed people pay double

If you are self-employed, you pay both the employee and employer portions of payroll tax yourself. That means 12.4% for Social Security (up to the annual wage cap) and 2.9% for Medicare (with no cap), for a total of 15.3% on your net self-employment income.

You calculate this on Schedule SE when you file your tax return. The good news is that you can deduct half of what you pay — the "employer half" — on your tax return, which lowers your taxable income. You still pay the full amount, but the deduction reduces your federal income tax bill.

How payroll tax deductions appear on your pay stub

Your pay stub breaks down payroll tax into line items. You will see "Social Security" or "OASDI" (Old Age, Survivors, and Disability Insurance) listed separately from "Medicare" or "Med Tax." Both are deducted before you receive your net pay.

The amount deducted each pay period depends on your gross pay and how often you are paid. If you are paid weekly, the deduction is roughly one-fifty-second of your annual Social Security and Medicare tax (since there are 52 weeks). If you are paid biweekly, it is roughly one-twenty-sixth. The exact amount may vary slightly due to rounding.

If you have multiple jobs, each employer withholds payroll tax independently. This can cause you to overpay Social Security tax if your combined earnings exceed the annual wage cap. You recover the overpayment when you file your tax return.

Frequently Asked Questions

Why do I pay payroll tax if I am already paying income tax?

Payroll tax and income tax are two separate taxes. Payroll tax funds Social Security and Medicare specifically. Income tax funds general government operations. You pay both on wages, and they are calculated differently — payroll tax is a flat percentage with no deductions, while income tax is withheld based on your W-4 form and varies by income level.

Can I avoid payroll tax?

No. Payroll tax is mandatory on all wages and self-employment income. There are no legal deductions or exemptions. Some people claim religious or philosophical exemptions from Social Security, but these are extremely rare and require IRS approval before you start working.

What happens if my employer does not withhold payroll tax?

You are still liable for it. If your employer fails to withhold and pay payroll tax to the IRS, you can report them to the Department of Labor or the IRS. You may also owe the tax yourself if the IRS pursues collection. Always check your pay stub to confirm payroll tax is being withheld.

Does payroll tax count toward my income tax return?

No. Payroll tax and income tax withholding are separate. Payroll tax goes directly to Social Security and Medicare and does not reduce your federal income tax bill. However, if you overpaid Social Security tax due to multiple jobs, you can claim a credit on your return.

Will payroll tax rates change in the future?

Congress can change payroll tax rates, but it rarely does. The Social Security wage cap increases automatically each year based on wage growth. The Medicare tax rate has been stable for decades, though Congress has added the Additional Medicare Tax for high earners. Any rate change would require new legislation.