Payroll tax is split between you and your employer, with the amount depending on your income and filing status
Payroll tax has two parts: Social Security tax and Medicare tax. You pay 6.2% of your wages to Social Security, and your employer pays another 6.2%. You pay 1.45% of your wages to Medicare, and your employer pays another 1.45%. If you earn over a certain threshold — $200,000 for single filers in 2024, though this varies by filing status — you pay an additional 0.9% Medicare tax on the amount above that threshold. Your employer does not pay this extra portion.
The Social Security portion stops once you hit the annual wage cap. In 2024, that cap is $168,600, meaning no Social Security tax is withheld on earnings above that amount. Medicare tax has no cap and continues on all wages. These figures change each year based on inflation.
Your employer withholds these amounts from your paycheck automatically. The total comes out before you see your take-home pay. If you are self-employed, you pay both the employee and employer portions yourself, which is called self-employment tax, and it totals 15.3% (12.4% for Social Security and 2.9% for Medicare, plus the additional 0.9% Medicare tax if applicable).
Key Takeaways
- Employee payroll tax is 7.65% of your wages (6.2% Social Security plus 1.45% Medicare), withheld automatically from each paycheck.
- Your employer pays an equal 7.65%, though you do not see this amount — it is a separate cost to them.
- Social Security tax stops once you earn $168,600 in a calendar year (2024 figure), but Medicare tax continues on all earnings.
- If you earn over $200,000 as a single filer, you pay an additional 0.9% Medicare tax on the excess amount.
- Self-employed workers pay 15.3% total because they cover both the employee and employer portions.
How the Social Security wage cap affects high earners
The Social Security wage cap means that once you reach a certain income level in a calendar year, you stop paying Social Security tax on additional earnings. In 2024, that cap is $168,600. If you earn $170,000, you pay Social Security tax only on the first $168,600.
This cap increases most years. The Social Security Administration adjusts it based on the national average wage index. In 2023, the cap was $160,200. In 2022, it was $147,000. The exact amount for future years is announced in October of the prior year.
Medicare tax has no wage cap, so you pay 1.45% on every dollar you earn, no matter how high your income goes. This is one key difference between the two taxes.
The additional Medicare tax for higher incomes
If your income exceeds certain thresholds, you pay an extra 0.9% Medicare tax on the amount above that threshold. For 2024, the thresholds are $200,000 for single filers, $250,000 for married couples filing jointly, and $125,000 for married couples filing separately.
Unlike the regular Medicare tax, your employer does not pay this additional portion. It comes entirely from your wages. Your employer is responsible for withholding it if your income crosses the threshold during the year. If you have multiple jobs or your spouse also works, you may need to adjust your withholding to avoid owing money at tax time, since each employer withholds based only on what they pay you.
Self-employment tax for business owners and freelancers
If you are self-employed, you pay both the employee and employer portions of payroll tax yourself. This is called self-employment tax. The rate is 15.3%: 12.4% for Social Security and 2.9% for Medicare. If your net self-employment income exceeds $168,600 (2024), the Social Security portion stops, but Medicare continues. If your income exceeds the thresholds mentioned above, you also owe the additional 0.9% Medicare tax.
You calculate self-employment tax on your net business income — your revenue minus business expenses — not your gross revenue. You report this on Schedule SE when you file your tax return. You can deduct half of your self-employment tax as an adjustment to income on your tax return, which reduces your taxable income slightly.
Self-employed workers often make estimated tax payments four times a year (quarterly) because no employer is withholding from their paychecks. The IRS provides Form 1040-ES to help you calculate these payments.
How payroll tax withholding works on your paycheck
Your employer calculates payroll tax withholding based on your gross pay and the information you provided on Form W-4 when you were hired. The W-4 tells your employer how many allowances to claim, which affects how much federal income tax is withheld — but it does not affect payroll tax withholding. Payroll tax (Social Security and Medicare) is always withheld at the fixed rates, regardless of your W-4.
Your pay stub shows the gross amount, the payroll taxes withheld, any other deductions (like health insurance or retirement contributions), and your net pay. The payroll taxes withheld are sent to the IRS on your behalf. At the end of the year, your employer reports what was withheld on your Form W-2, and you use that information when filing your tax return.
Payroll tax rates and wage caps for 2024
| Tax Type | Employee Rate | Employer Rate | Wage Cap (2024) |
|---|---|---|---|
| Social Security | 6.2% | 6.2% | $168,600 |
| Medicare | 1.45% | 1.45% | None |
| Additional Medicare (over threshold) | 0.9% | None | $200,000 (single) |
These rates and caps are set by federal law and do not change within a year. The wage cap for Social Security adjusts annually, usually announced in October. The thresholds for additional Medicare tax are indexed to inflation and also adjust yearly.
Frequently Asked Questions
Can I reduce my payroll tax withholding?
No. Payroll tax rates are fixed by law and explore to all workers. You cannot lower the 6.2% Social Security or 1.45% Medicare tax through your W-4 or any other method. These amounts are mandatory and withheld the same way for everyone earning wages.
What happens if I have two jobs — do I pay payroll tax on both?
Yes, you pay payroll tax on wages from both jobs. However, if your combined earnings exceed the Social Security wage cap, you may overpay Social Security tax during the year. When you file your tax return, you can claim a credit for the excess Social Security tax paid, and the IRS will refund it.
Do I pay payroll tax on tips?
Yes. Tips are considered wages and are subject to Social Security and Medicare tax. You report tips to your employer, and they withhold payroll tax on the tip amount along with your regular wages. If you receive cash tips you did not report, you still owe payroll tax on them when you file your return.
Is payroll tax the same as income tax?
No. Payroll tax (Social Security and Medicare) is separate from federal income tax. Income tax withholding is based on your W-4 and varies by person. Payroll tax is a fixed percentage that applies to all workers. Both are withheld from your paycheck, but they fund different programs and are calculated differently.
Do state and local governments collect payroll tax?
No. Social Security and Medicare are federal taxes only. Some states and cities collect their own income tax, which is separate from payroll tax. A few states also have disability insurance programs that withhold a small percentage from wages, but this is not payroll tax — it is a state program.