Payroll Taxes

The plain answer

Payroll taxes fund Social Security and Medicare. If you are an employee, your employer normally withholds your share from every paycheck. These taxes are separate from federal and state income taxes.

For 2026, employees pay 6.2% in Social Security tax on wages up to $184,500. Employees also pay 1.45% in Medicare tax, with no general wage cap.

How it actually works

Social Security tax stops applying after your wages from an employer reach the $184,500 wage base for the year. Medicare tax continues regardless of how high your wages are.

An additional 0.9% Medicare tax can apply to wages above $200,000 for single filers or $250,000 for married couples filing jointly. Your employer follows withholding rules based on the wages it pays you, but your final liability depends on your filing status and combined income when you file your tax return.

Employers generally pay their own matching share of Social Security and regular Medicare taxes. Self-employed people generally cover both the employee and employer portions through self-employment tax, although tax rules provide a related deduction when calculating adjusted gross income.

What this means for you

When comparing a salary offer with freelance income, account for payroll taxes as well as income taxes and benefits. A contractor rate often needs to be higher than an employee wage to cover the employer portion of payroll taxes, insurance, unpaid time off, and other costs.

Check your pay stub for Social Security, Medicare, and income tax withholding. Withholding is money paid toward a tax bill, not a separate tax. If you work for multiple employers, you may have too much Social Security tax withheld because each employer applies the wage base separately. Your tax return can reconcile that overpayment.

Do not spend a dollar to save thirty cents in taxes. A deduction or business expense is worthwhile only when the underlying purchase helps you reach a real goal.

Common mistakes

• Confusing payroll taxes with federal income tax.
• Assuming all payroll taxes stop at the Social Security wage base.
• Forgetting that freelance and self-employment income can create self-employment tax.
• Treating tax withholding as proof that the exact right amount of tax was paid.
• Ignoring the additional Medicare tax when household wages cross the applicable threshold.

Related pages

• How taxes actually work
• Understand your paycheck
• The order of operations for your money