What you pay into Medicare and Social Security are separate taxes on your paycheck

Your employer withholds two different taxes from your wages: Social Security tax and Medicare tax. They appear as separate line items on your pay stub. Social Security tax funds retirement, disability, and survivor benefits. Medicare tax funds hospital insurance, medical insurance, and prescription drug coverage when you turn 65.

Both taxes are mandatory if you work as an employee. Self-employed people pay both, but they pay the full amount themselves instead of splitting it with an employer. The rates and income limits are set by federal law and change only when Congress acts.

Understanding how much you pay now matters because it affects how much you receive later. The taxes you pay create a record that determines your future benefits under both programs.

Key Takeaways

  • Social Security tax is 6.2% of your wages (up to a yearly income cap), and Medicare tax is 1.45% with no income cap.
  • Your employer pays an equal amount for Social Security tax, but you pay the full Medicare tax yourself if you are self-employed.
  • High earners pay an additional 0.9% Medicare tax on income above $200,000 (single) or $250,000 (married filing jointly).
  • The income you pay taxes on is recorded by Social Security and used to calculate your retirement benefit amount.

Social Security tax rates and income limits

As an employee, you pay 6.2% of your gross wages in Social Security tax, and your employer pays another 6.2%. The combined 12.4% funds the Social Security trust fund. However, you only pay this tax on income up to a yearly limit. That limit changes each year based on wage growth. In 2024, the limit is $168,600, meaning you stop paying Social Security tax once you earn that much in a single year.

Once you reach the income cap, your paychecks stop showing Social Security tax withheld for the rest of that year. If you change jobs mid-year and your combined earnings from both employers exceed the cap, you may overpay. You can claim a refund of the overpayment when you file your federal income tax return.

Self-employed people pay both the employee and employer portions, totaling 12.4% on net self-employment income up to the same yearly cap. They deduct half of this amount when calculating their adjusted gross income on their tax return.

Medicare tax: no income cap, and an extra tax for high earners

Medicare tax is 1.45% of all your wages, with no yearly income limit. Unlike Social Security tax, you pay Medicare tax on every dollar you earn, no matter how much you make. Your employer pays another 1.45%, for a combined 1.9%.

If you earn above a certain threshold, you pay an additional 0.9% Medicare tax on the income over that threshold. For single filers, the threshold is $200,000. For married couples filing jointly, it is $250,000. For married filing separately, it is $125,000. This additional tax applies to wages, self-employment income, and certain investment income. Your employer withholds this extra tax automatically if your wages exceed the threshold.

Self-employed people pay the full 1.45% Medicare tax on net self-employment income, plus the additional 0.9% on income above the threshold. They cannot deduct the additional 0.9% tax.

How your tax payments create your Social Security record

Every time you pay Social Security tax, Social Security records the amount under your Social Security number. This record is called your earnings record. Social Security uses your highest 35 years of earnings to calculate your retirement benefit amount. The more you earn and pay in taxes during those years, the higher your benefit will be.

You can view your earnings record online through your my Social Security account at ssa.gov. The record shows how much you paid in Social Security tax each year going back to 1951. If you spot an error — such as earnings that were not credited to your account — you can report it to Social Security. Errors must usually be corrected within three years, three months, and 15 days of the year the earnings were reported.

Medicare does not use your tax payments to calculate benefits the way Social Security does. Instead, Medicare coverage at age 65 is based on your age and citizenship status, not on how much you paid in Medicare tax. However, if you did not pay Medicare tax for at least 40 quarters (10 years), you may have to pay a premium for Part A hospital coverage.

What happens to these taxes after they are withheld

Your employer sends both the Social Security and Medicare taxes withheld from your paycheck, plus the employer's matching portion, to the U.S. Treasury. The Social Security Administration and Centers for Medicare & Medicaid Services (CMS) then draw from the Treasury to pay current benefits and cover program operations.

Social Security operates as a pay-as-you-go system: taxes collected from current workers fund benefits for current retirees, disabled workers, and survivors. Medicare operates similarly, though it also draws from general revenue and beneficiary premiums. Neither program works like a personal savings account where your specific tax dollars are held for your future use.

The amount you paid in taxes does not determine how much you receive in Medicare coverage — Medicare benefits are the same for all beneficiaries regardless of tax history. Your Social Security benefit, however, is directly tied to your earnings record and the taxes you paid.

Tax treatment of Social Security and Medicare benefits

When you start receiving Social Security benefits, part of those benefits may be subject to federal income tax, depending on your total income. Medicare benefits themselves are not taxed, but you pay premiums for Medicare Parts B and D. These premiums are deducted from your Social Security check if you receive one, or you pay them directly to Medicare.

If you continue working after you start Social Security, you continue paying both Social Security and Medicare taxes on your wages. The additional Social Security taxes you pay may increase your benefit amount if those years replace lower-earning years in your record. Medicare taxes paid after age 65 do not increase your benefits.

Self-employed workers and quarterly tax payments

If you are self-employed, you pay both Social Security and Medicare taxes through self-employment tax on your net business income. You calculate this on Schedule SE when you file your annual tax return. The self-employment tax rate is 15.3% (12.4% for Social Security plus 2.9% for Medicare, which includes the base 1.45% plus the additional 0.9% if applicable).

Self-employed people with expected tax liability often make quarterly estimated tax payments to avoid a large bill at tax time. These payments include income tax, self-employment tax, and any other taxes owed. The IRS provides Form 1040-ES to help calculate quarterly payments. Keeping records of business income and expenses is essential, because your Social Security record is based on your net self-employment income, not your gross revenue.

Frequently Asked Questions

Can I stop paying Social Security tax if I do not plan to collect benefits?

No. Social Security tax is mandatory for all employees and self-employed people. You cannot opt out, even if you plan to work past full retirement age or do not intend to claim benefits. However, you can delay claiming benefits after you reach full retirement age, which increases your benefit amount by 8% per year until age 70.

What if I worked in another country — do those years count toward Social Security?

Generally, only earnings in the United States count toward your Social Security record. However, the U.S. has totalization agreements with about 30 countries that allow workers to combine credits from both countries under certain conditions. Contact Social Security to learn whether your work abroad can be credited.

Do I pay Medicare tax after I turn 65 and enroll in Medicare?

Yes. If you continue working, you pay Medicare tax on your wages regardless of your age or Medicare enrollment status. These additional taxes do not increase your Medicare benefits, but they do fund the program for other beneficiaries.

Why is my Medicare tax higher than my coworker's if we earn the same amount?

If you earn over $200,000 (single) or $250,000 (married filing jointly), you pay the additional 0.9% Medicare tax on the income above that threshold. Your coworker may earn below the threshold or have a different filing status, which would result in a lower Medicare tax.

Can I get a refund of Social Security or Medicare taxes I paid?

You cannot get a refund of taxes paid in prior years. However, if you overpaid Social Security tax due to multiple jobs in the same year, you can claim the overpayment as a credit on your federal income tax return. Medicare tax overpayments are handled the same way.