Employers and employees split payroll taxes, but the split is not equal

Both you and your employer pay payroll taxes, but you do not pay the same amount on the same earnings. Social Security and Medicare taxes are split: you pay 7.65% of your gross wages, and your employer pays another 7.65%. Your employer also pays federal and state unemployment insurance taxes, which come entirely from the employer's side. Income tax withholding is different — it comes only from your paycheck, and the amount depends on what you claim on your W-4 form.

The employer's share is a real cost to them, not money they recover from you later. When you see your pay stub, the taxes listed under your name are only your portion. The employer's portion never appears on your stub because it is paid separately to the IRS and state tax agencies.

Key Takeaways

  • You pay 6.2% for Social Security and 1.45% for Medicare; your employer pays the same percentages on top of your wages.
  • Your employer pays 100% of federal and state unemployment insurance taxes with no employee contribution.
  • Income tax withholding comes only from your paycheck and is based on your W-4 form, not a fixed percentage.
  • Self-employed people pay both the employee and employer share of Social Security and Medicare taxes, totaling 15.3%.
  • The employer's tax payments are separate from your paycheck and do not reduce what you owe at tax time.

How the Social Security and Medicare split works

Social Security tax is 6.2% and Medicare tax is 1.45%, for a combined 7.65%. You pay this on every dollar of wages up to a cap — in 2024, the Social Security 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 earnings.

Your employer pays an identical 7.65% on your behalf. This is a payroll cost that reduces the employer's profit but does not come out of your pocket. When you change jobs, you do not owe back pay on the employer's share, and it does not affect your personal tax return. The employer sends both shares directly to the IRS.

If you earn tips, you are responsible for reporting them to your employer, and payroll taxes are calculated on tips as if they were wages. If you do not report tips, you still owe the taxes, and the IRS can estimate them based on credit card records or a percentage of sales.

Unemployment insurance taxes are paid entirely by employers

Federal Unemployment Tax Act (FUTA) and state unemployment insurance taxes are employer-only costs. You do not see these withheld from your paycheck. The employer pays a percentage of your wages — the federal rate is 6% on the first $7,000 of annual wages per employee, though most employers receive a credit that reduces this to 0.6%. State rates vary widely, from under 1% to over 5%, depending on the state and the employer's history of layoffs.

These taxes fund unemployment benefits when you lose your job. Because the employer pays the full amount, they have an incentive to minimize layoffs, and employers with fewer claims pay lower rates in many states. You cannot deduct unemployment taxes from your own taxes because you did not pay them.

Income tax withholding is separate from payroll taxes

Federal income tax withholding is not a fixed percentage like Social Security and Medicare. Instead, your employer withholds based on the W-4 form you fill out when you start a job. The W-4 asks about your filing status, number of dependents, and other income, and the IRS provides a withholding calculator to help you get the amount right.

You control how much is withheld by changing your W-4. If you want more withheld (to get a larger refund), you can claim fewer dependents or request an extra amount per paycheck. If you want less withheld (to take home more pay), you can claim more dependents or request a reduction. Your employer has no say in the amount — they simply withhold what your W-4 instructs.

State income tax withholding works the same way, though not all states have income tax. If your state has income tax, you fill out a state W-4 form with similar questions. The state withholding amount is separate from federal withholding and is sent to your state tax agency, not the IRS.

Self-employed people pay both shares of Social Security and Medicare

If you are self-employed, you pay both the employee and employer portions of Social Security and Medicare taxes. This is called self-employment tax, and it totals 15.3% — 12.4% for Social Security (on earnings up to the annual cap) and 2.9% for Medicare (on all earnings). You calculate self-employment tax on your Schedule SE form and pay it along with your income tax return.

Self-employed people do get a deduction: you can deduct half of your self-employment tax from your income before calculating income tax. This partially offsets the fact that you pay both shares. You also do not pay self-employment tax on business losses, only on net profit.

If you have both W-2 wages and self-employment income, you pay payroll taxes on the W-2 wages (split with your employer) and self-employment tax on the net profit from self-employment. The Social Security portion of both is combined, so if your W-2 wages already hit the annual cap, you do not pay additional Social Security tax on self-employment income.

What happens to the money your employer pays

The employer's share of Social Security and Medicare taxes goes to the same trust funds as your share. The money is not held in a separate account for you — it is pooled with everyone else's contributions. When you retire, you receive benefits based on your earnings record, which includes both the employee and employer contributions made on your behalf.

Unemployment insurance taxes are held in state and federal trust funds and are paid out as unemployment benefits to workers who lose their jobs. These funds are separate from Social Security and Medicare and do not affect your retirement benefits.

Your employer must deposit both the employee and employer shares of payroll taxes with the IRS on a schedule determined by the size of the payroll. Most employers deposit weekly or biweekly. If an employer fails to deposit payroll taxes, the IRS can pursue the employer for the full amount plus penalties, and in some cases, individual officers of the company can be held personally liable.

How to read your pay stub and verify the amounts

Your pay stub shows your gross pay (before taxes), then lists each tax withheld: federal income tax, Social Security, Medicare, and state income tax if applicable. The stub should show the year-to-date total for each tax so you can track whether you are approaching the Social Security wage cap. It should not show your employer's payroll taxes — those are paid separately and do not appear on your stub.

If you notice an error — for example, Social Security tax withheld after you hit the annual cap, or an incorrect income tax amount — contact your employer's payroll department first. They can correct it on the next check or adjust it when they file your W-2 at year-end. If the employer does not correct it, you can report the error to the IRS when you file your tax return.

You can also check your Social Security earnings record by creating an account at ssa.gov. This shows what the Social Security Administration has recorded for your wages each year. If there is a discrepancy, you can contact Social Security to correct it, though you usually have only three years to do so.

Frequently Asked Questions

Can my employer reduce my paycheck to cover their payroll taxes?

No. The employer's share of payroll taxes is a business expense and cannot be deducted from your wages. If an employer tries to do this, it is wage theft. You can report it to your state's labor department or the U.S. Department of Labor Wage and Hour Division.

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

Yes. Each employer withholds payroll taxes based on your W-4. However, if your combined wages exceed the Social Security cap, you may have overpaid Social Security tax. You can claim a credit for the overpayment when you file your tax return, and the IRS will refund it.

Do payroll taxes count toward my Social Security benefits?

Yes. Both your employee and employer shares of Social Security tax are credited to your earnings record. Your future Social Security benefit is based on your 35 highest-earning years, and the amount you paid in taxes directly affects the benefit amount you receive.

What if my employer does not withhold payroll taxes?

You still owe the taxes. If your employer fails to withhold, you are responsible for paying them yourself, usually when you file your tax return. You can also report the employer to the IRS. If the employer is deliberately not paying taxes they collected, this is a federal crime.

Do I pay payroll taxes on bonuses and commissions?

Yes. Bonuses, commissions, and other forms of compensation are treated as wages for payroll tax purposes. Your employer withholds the same percentages as on regular pay, and the amount counts toward your Social Security wage cap for the year.