Employment tax is the money withheld from your paycheck for Social Security and Medicare, plus what your employer pays on your behalf

Employment tax is not the same as income tax. It funds two specific programs: Social Security (retirement, disability, and survivor benefits) and Medicare (health insurance for people 65 and older, and some younger people with disabilities). The rate is fixed by federal law and does not change based on your income level or filing status the way income tax does.

You pay half the employment tax directly — it comes out of your paycheck. Your employer pays the other half and sends it to the IRS on your behalf. Together, these two halves make up the full employment tax bill. You see only your half on your pay stub, labeled as FICA taxes.

Employment tax is separate from federal income tax withholding. You can have income tax withheld, owe income tax, or get a refund — all independently of employment tax. Employment tax has no refund. You either paid it or you did not.

Key Takeaways

  • Social Security tax is 6.2% of your wages (you pay) plus 6.2% your employer pays, for a total of 12.4%, but only on earnings up to a cap that changes yearly.
  • Medicare tax is 1.45% of your wages (you pay) plus 1.45% your employer pays, for a total of 2.9%, with no income cap.
  • If you earn over $200,000 as a single filer (or $250,000 married filing jointly), you pay an additional 0.9% Medicare tax on the excess, and your employer does not match this extra amount.
  • Self-employed people pay both halves of employment tax themselves — 12.4% for Social Security and 2.9% for Medicare — but can deduct half of it on their tax return.
  • Employment tax is withheld automatically from W-2 wages; self-employed people must calculate and pay it quarterly or annually.

Social Security tax: 6.2% up to the wage cap

You pay 6.2% of your wages to Social Security, and your employer pays another 6.2%. The total is 12.4%, but it only applies to wages below a certain threshold. In 2024, that threshold is $168,600. Any wages you earn above that amount are not subject to Social Security tax.

This cap means that a person earning $168,600 pays Social Security tax on all of it, but a person earning $300,000 pays Social Security tax only on the first $168,600. The cap rises most years because it is tied to the national average wage. The IRS announces the new cap in October for the following year.

Your employer withholds your 6.2% automatically from each paycheck. You can see it on your pay stub as "Social Security" or "OASDI" (Old-Age, Survivors, and Disability Insurance). The money funds retirement benefits, disability benefits for workers under 65, and survivor benefits for spouses and children of deceased workers.

Medicare tax: 1.45% with no cap, plus 0.9% if you earn above a threshold

You pay 1.45% of your wages to Medicare, and your employer pays another 1.45%. The total is 2.9%, and there is no income cap — it applies to every dollar you earn, no matter how much.

If your income exceeds certain thresholds, you pay an additional 0.9% Medicare tax on the excess. The thresholds are $200,000 for single filers, $250,000 for married couples filing jointly, and $125,000 for married couples filing separately. This extra 0.9% is withheld only from your paycheck; your employer does not pay a matching amount. It was added in 2013 as part of the Affordable Care Act.

On your pay stub, Medicare tax appears as "Medicare" or sometimes "HI" (Hospital Insurance). The money funds Medicare Part A (hospital insurance) and Part B (medical insurance) for people 65 and older and some younger people with disabilities or end-stage renal disease.

How employment tax appears on your pay stub

If you are a W-2 employee, your employer withholds employment tax automatically. Your pay stub shows the amount withheld under labels like "Social Security", "OASDI", "Medicare", "HI", or straightforward "FICA". The stub also shows your gross pay (before any deductions) so you can see what percentage was taken out.

The employer's share does not appear on your pay stub because your employer pays it directly to the IRS. You never see that money — it is not part of your take-home pay. But it is real money, and it counts toward your Social Security and Medicare credits.

If you have multiple jobs, each employer withholds employment tax separately. You cannot avoid the Social Security tax cap by spreading your income across employers — the IRS tracks your total wages across all employers and you can claim a credit on your tax return if you overpaid Social Security tax because of multiple jobs. This happens most often when you change jobs mid-year.

Self-employment tax: You pay both halves yourself

If you are self-employed — a freelancer, independent contractor, or owner of a sole proprietorship or partnership — you pay both the employee and employer shares of employment tax yourself. This is called self-employment tax.

Self-employment tax is 15.3% of your net earnings: 12.4% for Social Security (up to the wage cap) and 2.9% for Medicare (no cap). You also pay the additional 0.9% Medicare tax if your income exceeds the thresholds. You calculate self-employment tax on Schedule SE (Form 1040) and report it on your tax return.

The IRS allows you to deduct half of your self-employment tax on your tax return, which reduces your taxable income. This deduction offsets some of the burden of paying both halves, but it does not reduce the amount you owe. You still pay the full 15.3% (or more if you hit the additional Medicare tax threshold).

Many self-employed people pay self-employment tax quarterly using Form 1040-ES, rather than waiting until tax time. This spreads the payments throughout the year and avoids a large bill in April.

Employment tax versus income tax: Why they are separate

Employment tax and income tax are two different systems that fund different things. Employment tax is a flat rate (6.2% and 1.45% for employees) that goes to Social Security and Medicare. Income tax is progressive — it rises as your income rises — and it funds general government operations.

You can owe income tax, owe no income tax, or get a refund, all independently of employment tax. A person earning $30,000 a year might owe no federal income tax (because of the standard deduction and tax credits) but still pays employment tax on every dollar. A person earning $500,000 might pay a large amount of income tax but pay Social Security tax only on the first $168,600 of wages.

Employment tax is also mandatory and has no exemptions. Income tax withholding can be adjusted by filing a new W-4 form with your employer, but employment tax withholding is automatic and fixed by law. The only way to reduce employment tax is to reduce your earnings or become self-employed and claim business deductions (which reduce net earnings subject to self-employment tax).

What happens to the employment tax you pay

Social Security tax goes into the Social Security Trust Fund. When you reach full retirement age (which varies by birth year, ranging from 66 to 67), you can claim retirement benefits based on your earnings record. The amount you receive depends on how much you earned and how long you paid into the system, not on how much you paid in total.

Medicare tax goes into the Medicare Trust Fund. At age 65, you become may be able to access for Medicare Part A (hospital insurance) automatically if you have paid Medicare tax for at least 10 years (40 quarters). You can also become may be able to access for Medicare before 65 if you receive Social Security disability benefits or have end-stage renal disease.

Both trust funds are separate from the general Treasury. The money you pay in employment tax does not go to the general government budget — it is earmarked for these two programs. This is why employment tax is sometimes called a "payroll tax" or "dedicated tax".

Frequently Asked Questions

Why do I pay employment tax if I do not use Social Security or Medicare yet?

Employment tax is mandatory for all workers, regardless of age or whether you currently use the programs. You are building credits toward future benefits. Social Security credits are based on years worked and earnings, not on age. You can claim retirement benefits at 62 (with a reduced amount), full retirement age (full amount), or as late as 70 (with an increased amount).

Can I opt out of paying employment tax?

No. Employment tax is mandatory for all W-2 employees and self-employed people. There are no exemptions based on religion, personal belief, or income level. The only way to avoid it is to earn no wages, which is not practical for most people.

What if I overpaid Social Security tax because I had multiple jobs?

You can claim a credit on your tax return. File Form 1040 and the IRS will calculate the overpayment automatically if you report all your W-2 income. You will receive the overpaid amount as part of your refund or it will reduce the income tax you owe.

Does employment tax count toward my income tax withholding?

No. Employment tax and income tax withholding are separate. Your employer withholds both, but they go to different accounts and serve different purposes. You can adjust income tax withholding by filing a new W-4, but employment tax withholding is automatic and cannot be changed.

How much employment tax does my employer pay?

Your employer pays 6.2% for Social Security (up to the wage cap) and 1.45% for Medicare, totaling 8.65% of your wages. If you earn over the additional Medicare tax threshold, your employer does not pay the extra 0.9%. Your employer sends this money to the IRS along with your withholding, but you do not see it on your pay stub.