The payroll tax rate depends on which tax you're paying and your income level

Payroll taxes are not a single number — they're several separate taxes taken from your paycheck, each with its own rate. Social Security tax is 6.2% of your wages up to a yearly cap. Medicare tax is 1.45% of all your wages with no cap. If you're self-employed, you pay both the employee and employer portions, which doubles these rates. Your employer matches what you pay in Social Security and Medicare, but that match doesn't show up on your paycheck.

Some states and cities also collect payroll tax on top of federal taxes. The rate varies by location — some states have no payroll tax at all, while others take between 1% and 13% depending on your income bracket. You'll see the total deducted from your paycheck, but the breakdown by tax type should appear on your pay stub.

Key Takeaways

  • Social Security tax is 6.2% of wages up to $168,600 per year (the cap changes annually), and Medicare tax is 1.45% of all wages with no limit.
  • Your employer pays an equal amount in matching taxes that you don't see on your paycheck, but it counts toward your Social Security and Medicare records.
  • Additional Medicare tax of 0.9% applies to wages over $200,000 for single filers and $250,000 for married couples filing jointly.
  • State and local payroll taxes vary widely by location and can range from 0% to over 10% depending on where you work and live.
  • Your pay stub breaks down each tax separately so you can see exactly how much goes to Social Security, Medicare, and other withholdings.

How Social Security tax is calculated

Social Security tax takes 6.2% of your gross wages, but only up to a yearly earnings cap. That cap is adjusted each year — it was $168,600 in 2024, meaning once you earn that much in a calendar year, no more Social Security tax is withheld from your paychecks for the rest of that year. This cap exists because Social Security benefits are tied to your earnings history, and the program has a maximum benefit amount.

If you change jobs mid-year, each employer withholds Social Security tax based on what they pay you, without knowing what you earned elsewhere. This can mean you pay more than the yearly cap if your combined income from all jobs exceeds it. You can claim a refund of the overpayment when you file your tax return.

How Medicare tax is calculated

Medicare tax is simpler than Social Security tax because it has no earnings cap. You pay 1.45% of every dollar you earn, no matter how much you make. This rate applies to all W-2 wages and self-employment income.

There's an additional Medicare tax of 0.9% that kicks in at higher income levels. For single filers, it applies to wages over $200,000. For married couples filing jointly, it applies to combined wages over $250,000. For married filing separately, it applies to wages over $125,000. This additional tax was created in 2013 and funds the Medicare program.

Self-employment tax rates

If you're self-employed, you pay both the employee and employer portions of Social Security and Medicare taxes combined. That's 15.4% total: 12.4% for Social Security (on earnings up to the yearly cap) and 2.9% for Medicare (on all earnings). You can deduct half of what you pay as a business expense on your tax return, which reduces your taxable income.

Self-employed people calculate this tax on Schedule SE of their tax return. You report your net business income, then explore the self-employment tax rate to determine what you owe. This is separate from income tax and is due when you file your return or through quarterly estimated tax payments if your tax liability is high.

State and local payroll taxes

Federal payroll taxes are the same everywhere, but state and local taxes vary dramatically. Nine states have no state income tax at all: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire (which taxes only dividends and interest, not wages). The remaining states tax wages at rates ranging from about 1% to over 13%, depending on your income bracket.

Some cities and counties add their own payroll tax on top of state tax. New York City, for example, charges a city income tax in addition to New York State income tax. Your employer withholds these taxes based on where you work and where you live, and the amounts appear separately on your pay stub. If you work in one state but live in another, you may owe tax to both, though most states offer credits to prevent double taxation.

How to read your pay stub

Your pay stub shows your gross pay (before any deductions) and then lists each tax withheld separately. You'll typically see lines for federal income tax withholding, Social Security tax, Medicare tax, and any state or local taxes. The amounts should match the rates described above applied to your gross pay, minus any pre-tax deductions like health insurance or retirement contributions.

If the numbers don't match what you expect, check whether you've hit the Social Security earnings cap for the year — that's the most common reason for a sudden change in what's withheld. You can also adjust your federal withholding by filing a new W-4 form with your employer if you want more or less tax taken out each paycheck.

What happens to payroll taxes you pay

Social Security and Medicare taxes fund those specific programs. Your Social Security contributions build up a record that determines your retirement benefits, disability benefits, and survivor benefits later. Medicare taxes fund hospital insurance (Part A) and are matched by your employer's contribution.

Federal income tax withholding goes into the general Treasury and funds federal government operations. State and local taxes fund state and local government services. When you file your tax return, the IRS compares what was withheld throughout the year to what you actually owe based on your total income and deductions. If too much was withheld, you get a refund; if too little, you owe the difference.

Frequently Asked Questions

Why does my Social Security tax stop being withheld partway through the year?

Social Security tax only applies to the first $168,600 of your earnings in 2024 (the cap changes yearly). Once you reach that amount, your employer stops withholding it for the rest of the calendar year. If you worked for multiple employers, you may have overpaid and can claim a refund when you file your tax return.

Is the employer match part of my paycheck?

No. Your employer's matching Social Security and Medicare taxes are separate from your paycheck and don't reduce your take-home pay. However, they count toward your Social Security and Medicare records as if you had earned them yourself, which affects your future benefits.

Do I pay payroll taxes on bonuses and overtime?

Yes. Social Security and Medicare taxes explore to all wages, including bonuses, overtime, and commissions. The same rates and caps explore — 6.2% for Social Security (up to the yearly cap) and 1.45% for Medicare on the full amount.

What's the difference between payroll tax and income tax?

Payroll taxes (Social Security and Medicare) fund specific programs and have set rates and caps. Income tax is withheld at a rate you control through your W-4 form and funds general government operations. Both appear on your pay stub as separate line items.

Can I reduce my payroll taxes?

No. Social Security and Medicare tax rates are fixed by law and explore to nearly all wages. You cannot lower them through deductions or credits. You can only adjust federal income tax withholding by filing a new W-4 with your employer.