What You Pay Now and Why
Social Security and Medicare taxes come out of your paycheck automatically. Together they take 7.65% of your gross pay if you are an employee — 6.2% for Social Security and 1.45% for Medicare. If you are self-employed, you pay both the employee and employer share, which comes to 15.3% total. Your employer matches what you pay, but that match does not show up in your take-home.
These are not optional. Every dollar you earn as a wage or salary is subject to these taxes, with one exception: there is a cap on Social Security tax but not on Medicare tax. In 2024, you stop paying Social Security tax once your earnings hit $168,600 for the year. After that point, only the 1.45% Medicare tax continues. Self-employed people pay on all net earnings from self-employment with no cap on the Medicare portion.
The money does not go into a personal account with your name on it. Social Security tax funds current Social Security payments to retirees, disabled workers, and survivors. Medicare tax funds the hospital insurance part of Medicare (Part A). Understanding this matters because it explains why your tax rate does not change based on how much you have already received — the system works on a pay-as-you-go basis.
Key Takeaways
- Employees pay 6.2% for Social Security and 1.45% for Medicare, totaling 7.65% of gross wages, with no cap on Medicare but a $168,600 earnings cap on Social Security in 2024.
- Self-employed workers pay both the employee and employer portions, which totals 15.3%, and can deduct half of the self-employment tax on their income tax return.
- Your employer matches your Social Security and Medicare contributions, but this match is separate from your paycheck and does not reduce your taxes.
- Once you reach the Social Security wage cap in a given year, you stop paying the 6.2% Social Security tax but continue paying 1.45% Medicare tax on all remaining earnings.
How the Wage Cap Works for Social Security
The Social Security wage cap changes every year based on national wage growth. In 2024 it is $168,600. This means if you earn $200,000 in a year, you pay Social Security tax only on the first $168,600 of that income. The remaining $31,400 is not subject to the 6.2% Social Security tax.
The cap resets on January 1 each year. If you change jobs mid-year, each employer withholds Social Security tax based on what you earn at that job, without knowing what you earned elsewhere. This can result in overpayment — for example, if you worked two jobs and earned $85,000 at each, you would pay Social Security tax on the full $170,000 even though the cap is $168,600. When you file your tax return, you can claim a refund for the overpayment.
High earners often reach the cap by mid-year or earlier. If you reach it before December, you will see your take-home pay increase in the months that follow because the 6.2% Social Security tax stops being withheld. This is temporary — the tax resumes in January of the next year.
Medicare Tax Has No Wage Cap
Unlike Social Security, Medicare tax continues on every dollar you earn, no matter how much that is. The base rate is 1.45% for employees and 2.9% for self-employed workers. There is no upper limit.
However, there is an additional Medicare tax of 0.9% that applies to high earners. If you are single and earn more than $200,000 in a year, or married filing jointly and earn more than $250,000, you pay an extra 0.9% Medicare tax on the amount above that threshold. This brings the total Medicare tax to 2.35% for high earners (1.45% + 0.9%), or 3.8% for self-employed high earners (2.9% + 0.9%).
The additional Medicare tax is withheld by your employer if you are an employee, though employers sometimes make mistakes. If you have multiple jobs or your spouse also works, you may owe additional tax at filing time. Self-employed people calculate and pay this tax when they file their return.
What Self-Employed People Pay
Self-employment tax covers both the employee and employer portions of Social Security and Medicare. The rate is 15.3% on net self-employment income — 12.4% for Social Security (up to the annual cap) and 2.9% for Medicare. You calculate this on Schedule SE of your tax return.
The good news is that you can deduct half of your self-employment tax as an adjustment to income on your tax return. This reduces your taxable income and lowers your overall tax bill. You still pay the full 15.3%, but the deduction offsets some of the burden.
Self-employed people also have to make quarterly estimated tax payments if they expect to owe more than $1,000 in taxes for the year. These payments include income tax, self-employment tax, and any other taxes owed. Missing these payments can result in penalties, even if you end up overpaying when you file your return.
How These Taxes Fund Social Security and Medicare
Social Security tax (the 6.2% portion) goes into the Social Security Trust Fund, which pays monthly benefits to retirees at full retirement age, disabled workers, and survivors of deceased workers. The amount you receive in retirement is based partly on how much you paid in over your working years, though the formula is progressive — lower earners get a higher percentage of their contributions back.
Medicare tax (the 1.45% portion) funds Part A of Medicare, which covers hospital stays, skilled nursing facility care, hospice, and some home health services. This is the only part of Medicare that is fully funded by payroll tax. Parts B and D (medical insurance and prescription drug coverage) are funded by premiums you pay and general tax revenue.
Both systems are pay-as-you-go, meaning current workers' taxes pay current beneficiaries' benefits. This is why changes to either program often involve adjusting the tax rate, the wage cap, or the benefits themselves — the money does not accumulate in a personal savings account.
Checking Your Tax Records
Your Social Security Statement shows how much you have paid in Social Security and Medicare taxes over your lifetime. You can view this online at ssa.gov by creating a my Social Security account. The statement also estimates what your benefits might be at different retirement ages.
Your pay stub shows what is being withheld each pay period. The line labeled "FICA" or "OASDI" is your Social Security tax. The line labeled "Medicare" or "Med" is your Medicare tax. If these amounts seem wrong — for example, if you are still paying Social Security tax after reaching the wage cap — contact your payroll department or your employer's HR office.
If you think you have overpaid Social Security tax due to multiple jobs, you can claim the refund when you file your income tax return. Use Form 1040 and follow the instructions for excess Social Security tax. You do not need to contact Social Security directly.
Frequently Asked Questions
Can I opt out of paying Social Security or Medicare tax?
No. These taxes are mandatory for all employees and self-employed workers. The only exception is certain members of religious groups who have received an exemption from the IRS, which is rare and requires a formal process process.
What happens if I work after I start receiving Social Security?
You continue paying Social Security and Medicare taxes on your wages. If you are below full retirement age and earn above a certain amount, your benefits may be reduced temporarily. Once you reach full retirement age, there is no earnings limit and your benefits are not reduced.
Do I pay these taxes on investment income or rental income?
No. Social Security and Medicare taxes explore only to wages, salaries, and net self-employment income. Investment income, rental income, and capital gains are not subject to these payroll taxes, though they may be subject to other taxes.
Why does my take-home pay jump in certain months?
If you are a high earner, you likely hit the Social Security wage cap and stopped paying the 6.2% Social Security tax. This is normal and temporary — the tax resumes in January. If the jump happens at a different time, check with your payroll department to see if there was a change in your deductions or withholding.
If I am self-employed, can I avoid paying self-employment tax?
No. Self-employment tax is mandatory if you have net self-employment income of $400 or more in a year. You calculate and pay it when you file your tax return. You can deduct half of it to reduce your taxable income, but you cannot avoid paying it.