Payroll tax (FICA)
Social Security and Medicare taxes withheld from wages and self-employment income.
Employee FICA = 6.2% × wages up to the wage base + 1.45% × all wages + 0.9% × wages above $200k single / $250k MFJ
Explanation
FICA (Federal Insurance Contributions Act) taxes fund Social Security and Medicare. They are separate from income tax and apply only to earned income: wages, salaries, bonuses and self-employment income. They do not apply to investment income, retirement account withdrawals or Roth conversions.
For employees:
- Social Security: 6.2% on wages up to the annual wage base ($184,500 in 2026; it rises with average wages each year). Your employer pays another 6.2%.
- Medicare: 1.45% on all wages, with no cap. Your employer matches it.
- Additional Medicare tax: 0.9% on wages above $200,000 (single) or $250,000 (married filing jointly, combined). Employers do not match this, and the thresholds are not indexed.
Self-employed people pay both halves, 15.3% in total, on 92.35% of net self-employment earnings, and can deduct half of it for income tax purposes.
Pre-tax 401(k) contributions reduce income tax but not FICA. HSA contributions made through an employer’s cafeteria plan avoid both.
In scenarios, payroll taxes are included while you have earned income, which makes your working-year tax rate noticeably higher than in retirement, when income comes from investments and accounts that are not subject to FICA.
Example
A single employee earns $220,000 in wages in 2026.
- Social Security: 6.2% × $184,500 = $11,439
- Medicare: 1.45% × $220,000 = $3,190
- Additional Medicare: 0.9% × ($220,000 − $200,000) = $180
- Total employee FICA: $14,809
On wages of $60,000, FICA would be 7.65% × $60,000 = $4,590, since the wages are below both the wage base and the additional Medicare threshold.