The payroll tax rate depends on whether you are an employee or self-employed
If you are an employee, you pay 6.2% for Social Security and 1.45% for Medicare, totaling 7.65%. Your employer matches these amounts. If you are self-employed, you pay both the employee and employer portions — 12.4% for Social Security and 2.9% for Medicare, totaling 15.3% — on your net self-employment income.
These rates are set by federal law and do not change based on your income level, though Social Security tax stops once you reach the wage base limit. The wage base limit for 2024 is $168,600, meaning you pay Social Security tax only on income up to that amount. Medicare tax has no wage limit and applies to all earnings.
State and local payroll taxes vary widely and are separate from federal payroll tax. Some states have no payroll tax at all, while others tax wages, self-employment income, or both. You may also owe local taxes depending on where you work or live.
Key Takeaways
- Employees pay 7.65% in federal payroll tax (6.2% Social Security, 1.45% Medicare), with employers matching the full amount.
- Self-employed people pay 15.3% on net self-employment income because they cover both the employee and employer share.
- Social Security tax applies only to income up to $168,600 in 2024, but Medicare tax applies to all earnings with no limit.
- State and local payroll taxes are separate and vary by location; some states have no income tax at all.
- You can deduct half of your self-employment tax on your federal income tax return, which reduces your overall tax burden.
How the Social Security wage base limit affects what you owe
The Social Security wage base limit is the maximum amount of earnings subject to Social Security tax in a given year. For 2024, that limit is $168,600. Once your wages reach that amount, you stop paying the 6.2% Social Security tax on any additional income for the rest of the year.
This matters most if you have multiple jobs or if you are self-employed with high income. If you earn $180,000 as an employee, you pay Social Security tax on only the first $168,600, not the full amount. If you change jobs mid-year and both employers withhold Social Security tax, you may have overpaid and can claim a refund on your tax return.
Medicare tax has no wage base limit. You pay 1.45% on all wages, no matter how much you earn. High earners also pay an additional 0.9% Medicare tax on wages above $200,000 (single) or $250,000 (married filing jointly), which brings the total Medicare rate to 2.35% for those above the threshold.
What self-employed people pay and how to calculate it
Self-employment tax is calculated on your net profit from self-employment, not your gross revenue. Net profit is what remains after you subtract business expenses from income. You report this on Schedule C (Form 1040) and then calculate self-employment tax on Schedule SE.
The calculation works like this: take your net self-employment income, multiply by 92.35% (to account for the employer-side deduction), then explore the 15.3% rate. For example, if your net self-employment income is $50,000, you multiply by 0.9235 to get $46,175, then multiply by 0.153 to get $7,065 in self-employment tax.
You can deduct half of your self-employment tax as an adjustment to income on your tax return. In the example above, you would deduct $3,533, which lowers your taxable income. This deduction does not require itemizing and applies whether you take the standard deduction or itemize.
State and local payroll taxes vary by where you work
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). In these states, you owe only federal payroll tax and any local taxes that explore.
Other states tax wages at rates ranging from roughly 1% to over 13%, depending on your income level. Some states use a flat rate, while others use a progressive system with multiple brackets. A few states also tax self-employment income differently than wages, or tax business income at a separate rate.
Many cities and counties also impose local payroll or income taxes. New York City, for example, taxes both residents and non-residents who work in the city. Philadelphia, Columbus, and other cities have their own local taxes. Your employer should withhold these automatically, but you should verify that the correct amount is being taken from your paycheck.
How to check if you are being taxed correctly
Review your pay stub to see what is being withheld. The stub should show gross pay, federal income tax withheld, Social Security tax (labeled as OASDI or Social Security), Medicare tax, and any state or local taxes. Compare the percentages to the rates described above.
If you are an employee, your Social Security and Medicare withholding should be automatic and correct. If you notice that Social Security tax is still being withheld after you have reached the $168,600 wage base limit, contact your employer's payroll department — you may be owed a refund.
If you are self-employed, you are responsible for calculating and paying self-employment tax yourself, usually through quarterly estimated tax payments. If you did not pay enough during the year, you will owe the balance when you file your return. If you overpaid, you will receive a refund.
The difference between payroll tax and income tax withholding
Payroll tax and income tax withholding are two separate things. Payroll tax (Social Security and Medicare) is a fixed percentage that goes to specific federal programs. Income tax withholding is an estimate of the federal income tax you will owe, based on your W-4 form and your expected tax bracket.
Your employer withholds both from your paycheck. The payroll tax portion is always the same rate; the income tax portion can vary depending on how you filled out your W-4. If you claim too many allowances on your W-4, too little income tax will be withheld and you may owe money at tax time. If you claim too few, you will overpay and receive a refund.
Self-employed people do not have income tax withheld automatically. You must estimate your total tax liability (both income tax and self-employment tax) and pay it in quarterly installments. If you underestimate, you may owe a penalty in addition to the unpaid tax.
When payroll tax rates change and how to stay informed
The Social Security and Medicare tax rates are set by federal law and rarely change. The wage base limit, however, adjusts each year based on average wage growth. The IRS announces the new limit in October for the following year.
State and local tax rates change more frequently. Some states adjust their rates annually, while others change them less often. If you move to a new state or city, or if your employer opens a new location, you may be subject to different payroll taxes.
The best way to stay informed is to check the IRS website for the current year's wage base limit and to review your pay stub each time you receive it. If you are self-employed, consult a tax professional or use tax software that updates automatically for the current year's rates.
Frequently Asked Questions
Why do I pay Social Security tax if I am already getting Social Security benefits?
You continue to pay Social Security tax on wages even if you are receiving benefits. However, if you earn above a certain threshold while receiving benefits before full retirement age, your benefits may be temporarily reduced. Once you reach full retirement age, there is no earnings limit and your benefits are not affected by how much you earn.
Can I reduce my payroll tax by contributing to a 401(k) or IRA?
Contributing to a traditional 401(k) reduces your federal income tax but not your payroll tax. You still pay Social Security and Medicare tax on 401(k) contributions. However, Health Savings Accounts (HSAs) are exempt from payroll tax, so contributions to an HSA reduce both income tax and payroll tax.
What happens if I work for multiple employers in the same year?
Each employer withholds Social Security tax separately. If your combined wages exceed the wage base limit, you will overpay Social Security tax. You can claim the overpayment as a refund on your tax return when you file. Medicare tax has no wage base limit, so there is no overpayment issue with multiple jobs.
Do I owe payroll tax on tips?
Yes. Tips are considered wages and are subject to Social Security and Medicare tax. Your employer should withhold payroll tax on tips you report. If you receive cash tips that you do not report, you still owe self-employment tax on that income when you file your return.
How do I know if I am paying enough in quarterly estimated taxes?
You should pay enough during the year so that you do not owe more than $1,000 when you file your return. The IRS provides Form 1040-ES to help you calculate quarterly payments. If your income varies throughout the year, you can adjust your payments each quarter based on actual earnings rather than using the same amount each time.