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Payroll Tax

Tax

US Payroll Tax (FICA)

Taxes withheld from an employee's paycheck and matched by the employer to fund Social Security and Medicare, calculated as a fixed percentage of gross wages up to an annual wage base.

Definition

Payroll tax, formally known as FICA (Federal Insurance Contributions Act) tax in the US, refers to the taxes withheld from an employee's paycheck — and matched by the employer — to fund the Social Security and Medicare programs. It is calculated as a fixed percentage of gross wages, distinct from progressive federal or state income tax.

Because payroll tax funds specific, dedicated federal programs rather than general government spending, its rates are flat (not bracket-based) and Social Security's portion is capped at an annual wage limit.

Formula

Employee Payroll Tax = (Wages × 6.2% Social Security, up to wage base) + (Wages × 1.45% Medicare, uncapped)

Employer Payroll Tax = Same as employee's contribution (matched dollar-for-dollar)

Additional Medicare Tax = 0.9% on wages above the high-earner threshold (paid only by the employee, not matched by the employer)

Worked Example

You earn $80,000 in gross wages for the year, below the Social Security wage base.

Social Security tax = $80,000 × 6.2% = $4,960

Medicare tax = $80,000 × 1.45% = $1,160

Total employee payroll tax = $4,960 + $1,160 = $6,120

Your employer separately contributes another $6,120, for a combined $12,240 funding Social Security and Medicare on your wages. Use the payroll tax calculator to estimate your own payroll tax withholding, including scenarios above the wage base.

Key Things to Know

  • Social Security tax has an annual wage cap: Once your year-to-date wages exceed the Social Security wage base, no further Social Security tax is withheld for the rest of the year — but Medicare tax continues on every dollar earned.
  • Payroll tax funds your future Social Security benefits: Your lifetime payroll tax contributions directly determine your eventual Social Security benefit calculation in retirement.
  • Self-employed pay both halves: If you're self-employed, you owe self-employment tax covering both the employee and employer shares, since there's no separate employer to match the contribution.
  • Payroll tax is separate from income tax withholding: Payroll tax funds Social Security/Medicare at flat rates, while income tax withholding (guided by your W-4) estimates your progressive federal tax liability — both appear as separate line items on your pay stub.
  • High earners owe an extra 0.9%: The Additional Medicare Tax applies once wages cross a threshold, and unlike the base Medicare tax, it is not matched by the employer.

Related Calculators

Payroll Tax Calculator →Calculate how much federal income tax, Social Security, and Medicare is withheld from each paycheck. See your net take-home pay by filing status in seconds.

Related Terms

Self-Employment TaxUS Self-Employment Tax (Social Security + Medicare)TDSTax Deducted at Source

Frequently Asked Questions

US payroll tax, commonly called FICA, consists of two parts: Social Security tax (6.2% on wages up to an annual cap) and Medicare tax (1.45% on all wages, with no cap). Both the employee and employer pay matching amounts, so the combined rate funding these programs is effectively 15.3% of wages.
Yes, the Social Security portion (6.2%) only applies up to an annual wage base limit set by the SSA each year — wages above that limit are not subject to the Social Security tax, though Medicare tax has no such cap. High earners may also owe an Additional Medicare Tax of 0.9% on wages above a separate, higher threshold.
Payroll tax (FICA) funds specific programs — Social Security and Medicare — at fixed flat rates regardless of your income tax bracket, while federal income tax withholding is a progressive estimate of your annual income tax liability based on your W-4 elections. Both are deducted from your paycheck, but they serve entirely different purposes.
Self-employed individuals pay a similar tax called self-employment tax, which covers both the employee and employer shares of Social Security and Medicare since there's no separate employer to match the contribution. The combined self-employment tax rate is 15.3%, though half of it is deductible when calculating adjusted gross income.
Yes, employers match the employee's 6.2% Social Security and 1.45% Medicare contributions dollar-for-dollar, effectively doubling the total payroll tax collected on each employee's wages. This employer share is a real cost of employment separate from the employee's gross salary.