What Are Payroll Taxes? FICA, Medicare, Social Security Explained

Every time you get a paycheck, a chunk of money disappears before it reaches your bank account. Part of that is federal income tax withholding, but another significant piece is payroll taxes — the taxes that fund Social Security and Medicare. These two programs together cost you 7.65% of your gross pay, and your employer pays another 7.65% on top of that. If you’re self-employed, you pay both halves yourself.

Data Notice: Tax figures and thresholds related to what are payroll taxes cited in this article are projected 2026 values based on IRS guidance and current legislation. Tax law is subject to change. Verify all figures with IRS.gov or a licensed tax professional before making decisions.

Understanding payroll taxes helps you decode your pay stub, anticipate your tax bill, and understand one of the biggest differences between being an employee and being self-employed.

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What Is FICA?

FICA stands for the Federal Insurance Contributions Act. It’s the law that authorizes payroll taxes for Social Security and Medicare. When people say “FICA taxes,” they mean the combined Social Security and Medicare taxes taken from your paycheck.

FICA has two parts:

Tax	Employee Rate	Employer Rate	Combined
Social Security	6.2%	6.2%	12.4%
Medicare	1.45%	1.45%	2.9%
Total FICA	7.65%	7.65%	15.3%

When you look at your pay stub, the employee portion (7.65%) is what you see taken out. Your employer pays the other 7.65% behind the scenes — you never see it on your pay stub, but it’s a real cost of employing you.

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Social Security Tax: The Details

The Rate

Both you and your employer pay 6.2% of your gross wages toward Social Security. The combined rate is 12.4%.

The Wage Base Cap

Unlike income tax, Social Security tax has a ceiling. For 2026, the Social Security wage base is projected at ~$176,100. Once your earnings for the year exceed that amount, you stop paying Social Security tax on the excess.

This means:

• If you earn ~$60,000: You pay 6.2% on all ~$60,000 = ~$3,720 in Social Security tax
• If you earn ~$176,100: You pay 6.2% on all ~$176,100 = ~$10,918 in Social Security tax
• If you earn ~$250,000: You still pay only ~$10,918 (nothing on the ~$73,900 above the cap)

The wage base is adjusted for inflation each year. You can see the Social Security wages and tax withheld on your W-2 in Boxes 3 and 4.

Multiple Employers

If you work for more than one employer and your combined wages exceed the wage base, you may overpay Social Security tax. Each employer withholds 6.2% independently and has no way to know about your other job. You can claim the excess Social Security tax as a credit on your Form 1040 when you file your return.

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Medicare Tax: The Details

The Base Rate

Both you and your employer pay 1.45% of your gross wages toward Medicare. Unlike Social Security, there is no wage cap — Medicare tax applies to every dollar you earn, no matter how high your income.

Additional Medicare Tax (0.9%)

Since 2013, an additional 0.9% Medicare surtax applies to earnings above certain thresholds:

Filing Status	Threshold
Single	~$200,000
Married Filing Jointly	~$250,000
Married Filing Separately	~$125,000

This additional 0.9% is paid by the employee only — your employer does not match it.

Important note about withholding: Your employer starts withholding the additional 0.9% once your wages from that employer exceed $200,000, regardless of your filing status. If you’re married filing jointly and your combined income triggers the surtax at a different threshold, you may need to adjust your withholding or make estimated tax payments.

Example

If you’re a single filer earning ~$240,000:

• Medicare tax on first ~$200,000: ~$200,000 × 1.45% = ~$2,900
• Medicare tax on next ~$40,000: ~$40,000 × (1.45% + 0.9%) = ~$40,000 × 2.35% = ~$940
• Total Medicare tax: ~$3,840 (employee share)

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Payroll Taxes vs. Income Tax: Key Differences

People often lump “taxes” together, but payroll taxes and income tax are fundamentally different:

	Payroll Taxes (FICA)	Federal Income Tax
Rate	Flat percentages (6.2% + 1.45%)	Progressive brackets (10%–37%)
What they fund	Social Security and Medicare	General federal government operations
Cap	Social Security has a wage base cap	No cap — applies to all taxable income
Deductions reduce it?	No — applies to gross wages	Yes — adjustments, standard deduction, credits all reduce it
Employer pays half?	Yes	No
Applies to investment income?	No (with one exception*)	Yes

*The 3.8% Net Investment Income Tax (NIIT) is technically a separate tax, but it functions similarly to the Additional Medicare Tax for investment income. It applies to singles with MAGI above ~$200,000 and married couples above ~$250,000.

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Self-Employment Tax: Paying Both Halves

When you’re self-employed — whether you’re a freelancer, independent contractor, gig worker, or sole proprietor — there’s no employer to pay the other half of FICA. You pay the full 15.3% yourself. This is called self-employment tax and it’s calculated on Schedule SE.

How It Works

• Social Security portion: 12.4% on net self-employment income up to the wage base (~$176,100)
• Medicare portion: 2.9% on all net self-employment income (no cap)
• Additional Medicare: 0.9% on self-employment income above the threshold (~$200,000 single)

The Silver Linings

The tax code provides two adjustments to make self-employment tax somewhat more fair:

1. You calculate SE tax on 92.35% of net income — This approximates the fact that employees don’t pay FICA on the employer’s share of FICA. It reduces the base slightly.

2. You can deduct half of SE tax as an above-the-line adjustment — This deduction reduces your AGI, which in turn can reduce your income tax. The logic is that employees don’t pay income tax on their employer’s share, so self-employed people shouldn’t either.

Example

If your net self-employment income is ~$80,000:

• Taxable SE base: ~$80,000 × 92.35% = ~$73,880
• Social Security tax: ~$73,880 × 12.4% = ~$9,161
• Medicare tax: ~$73,880 × 2.9% = ~$2,143
• Total self-employment tax: ~$11,304
• Above-the-line deduction (half): ~$5,652 (reduces your AGI)

For a complete walkthrough, see our self-employment tax guide.

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What If You Have Both W-2 and 1099 Income?

If you’re an employee with a side gig, your W-2 wages and self-employment income are combined for Social Security purposes. The total Social Security tax between FICA and SE tax cannot exceed the wage base cap.

Example:

• W-2 wages: ~$150,000 (Social Security tax already withheld: ~$9,300)
• Net self-employment income: ~$40,000
• Remaining room under the wage base: ~$176,100 − ~$150,000 = ~$26,100
• Social Security portion of SE tax applies to only ~$26,100 (not the full ~$40,000)
• Medicare portion of SE tax still applies to the full ~$40,000

This interaction is calculated on Schedule SE and ensures you don’t overpay Social Security tax.

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Where Payroll Taxes Show Up

On Your Pay Stub

Look for lines labeled “Social Security,” “SS,” “OASDI,” “Medicare,” or “FICA.” These are your payroll tax withholdings.

On Your W-2

• Box 3 — Social Security wages
• Box 4 — Social Security tax withheld
• Box 5 — Medicare wages and tips
• Box 6 — Medicare tax withheld

For a complete box-by-box guide, see What Is a W-2?.

On Your Tax Return

If you’re self-employed, self-employment tax is calculated on Schedule SE and reported on Schedule 2, Line 4 of your Form 1040. The deductible half is claimed on Schedule 1, Line 15.

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How Payroll Taxes Fund Your Benefits

Payroll taxes aren’t just disappearing into a void — they’re building your future Social Security and Medicare benefits:

• Social Security tracks your earnings over your highest-earning 35 years to calculate your retirement benefit. The more you pay in (up to the wage base), the higher your eventual benefit.
• Medicare Part A (hospital insurance) is available premium-free at age 65 if you (or your spouse) paid Medicare taxes for at least 40 quarters (10 years).

You can check your earnings record and estimated benefits at ssa.gov by creating a my Social Security account.

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Frequently Asked Questions

Are payroll taxes included in my income tax bracket?

No. Payroll taxes and income tax are separate systems. When people refer to tax brackets, they mean federal income tax brackets. Payroll taxes are calculated separately at flat rates.

Can I reduce my payroll taxes?

Not directly — FICA taxes apply to gross wages with no deductions or exemptions (unlike income tax). However, certain pre-tax benefits like employer HSA contributions and some cafeteria plan benefits may reduce your FICA-taxable wages. Maximizing your 401(k) does NOT reduce FICA wages — it only reduces Box 1 (income tax wages) on your W-2.

Why does my paycheck seem “over-taxed”?

Your gross paycheck is reduced by federal income tax withholding, Social Security tax (6.2%), Medicare tax (1.45%), and possibly state and local income taxes. Together, these can easily total 25%–35% of your gross pay, which surprises many people. See our withholding guide for ways to understand and adjust what’s taken out.

Do retirees pay payroll taxes?

Not on retirement income (pensions, IRA distributions, Social Security benefits). Payroll taxes only apply to earned income — wages and self-employment income. However, if a retiree works a part-time job, those wages are subject to FICA.

What’s the difference between payroll taxes and the “payroll tax holiday”?

During the COVID-19 pandemic, there was a temporary deferral of the employee share of Social Security tax for some workers. A “payroll tax holiday” reduces or eliminates the employee’s share of FICA for a period. These are temporary legislative actions, not permanent features of the tax code.

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Tax information is for educational purposes only and does not constitute tax, legal, or financial advice. Consult a licensed tax professional for guidance specific to your situation.