Taxes 101: Medicare and Social Security Payroll Taxes

Here’s a pivotal coming-of-age realization: Your paycheck isn’t your total earnings in a pay period — it’s what’s left after you’ve paid taxes on those earnings. 

Which taxes? Well, depending on where you live, you might pay a state income tax. Then there’s the federal income tax. And finally, payroll taxes.

Payroll taxes are dedicated taxes on your earnings that fund government programs, including Social Security and Medicare.

Your Social Security payroll tax contributions

Social Security is a federal program that provides retirement, survivor, and disability benefits to millions of Americans — and those benefits are solely financed by revenue generated through the payroll tax.

The total payroll tax rate for Social Security is 12.4%:

• If you’re traditionally employed (i.e., you work for an employer), the tax works like this: You send 6.2% of every dollar you earn to Social Security, and your employer pays the other 6.2% on your behalf. 
• If you’re self-employed, then you’re responsible for paying the full 12.4%.

Current workers pay the Social Security payroll tax on every dollar they earn until their total earnings for the year reach what’s known as the taxable maximum. 

The taxable maximum for 2025 is $176,100. That means any earnings over that amount are not subject to the Social Security payroll tax. 

Your Medicare payroll tax contributions

Medicare is a federal health insurance program for individuals 65 and older — and some people under 65 with certain disabilities or conditions. 

Medicare benefits are funded, in part, by a payroll tax. The total payroll tax rate for Medicare is 2.9%:

• If you’re traditionally employed (i.e., you work for an employer), then you send 1.45% of every dollar you earn to Medicare, and your employer pays the other 1.45% on your behalf.
• If you’re self-employed, you pay the full 2.9% Medicare payroll tax.

But unlike Social Security, the tax rate for Medicare actually goes up the more that you earn. 

Instead of a taxable maximum that indicates when you can stop paying a tax, the Medicare payroll tax has an income threshold that indicates when you begin paying more. 

In 2025, the income threshold for the Medicare payroll tax is $200,000 for individuals and $250,000 for married couples who file their taxes jointly.

• Any earnings below those thresholds are subject to the standard 2.9% payroll tax rate for Medicare. 

• Any earnings above those thresholds are subject to an additional 0.9% in Medicare payroll taxes, making the total tax rate on those additional earnings 3.8%. 

It’s important to note that this additional 0.9% tax is paid solely by the worker. So, even if you are in a traditional employment arrangement, none of the additional tax will be covered by your employer.

So, if your paycheck is a little less than you expected, that money isn’t missing. It’s funding important programs that millions of Americans count on!

Keep reading: Want to know more about how your payroll taxes fund Social Security benefits? Explore Social Security’s pay-as-you-go system.