What Are Payroll Taxes?
Quick Answer
Payroll taxes are mandatory taxes on wages that fund Social Security and Medicare, totaling 15.3% of your gross pay — split evenly between you (7.65%) and your employer (7.65%). They are separate from federal and state income taxes. Unlike income tax, payroll taxes have no brackets, no standard deduction, and very few ways to reduce them. For most workers, payroll taxes are the second-largest tax on their paycheck after federal income tax.
What Payroll Taxes Include
The term "payroll taxes" typically refers to FICA taxes:
| Tax | Employee Rate | Employer Rate | Total |
|---|---|---|---|
| Social Security | 6.2% | 6.2% | 12.4% |
| Medicare | 1.45% | 1.45% | 2.9% |
| Total FICA | 7.65% | 7.65% | 15.3% |
Social Security tax caps at $176,100 in wages for 2025. Medicare has no cap, and high earners pay an additional 0.9% on wages above $200,000.
Some definitions of payroll taxes also include federal unemployment tax (FUTA) and state unemployment tax (SUTA), which are typically paid entirely by the employer.
Real Example With Actual Numbers
Ben earns $68,000 in Florida. Here is his annual payroll tax breakdown:
Employee Side (What Ben Pays)
| Tax | Calculation | Annual |
|---|---|---|
| Social Security | $68,000 x 6.2% | $4,216 |
| Medicare | $68,000 x 1.45% | $986 |
| Total | $5,202 |
Employer Side (What Ben's Company Pays)
| Tax | Calculation | Annual |
|---|---|---|
| Social Security | $68,000 x 6.2% | $4,216 |
| Medicare | $68,000 x 1.45% | $986 |
| FUTA (est.) | ~$420 | |
| Total | ~$5,622 |
Ben's total cost to his employer is $68,000 + $5,622 = $73,622. The employer's payroll tax is invisible to Ben but is part of the real cost of employment. See your payroll tax breakdown at the SalaryHog calculator.
Payroll Tax vs Income Tax
| Feature | Payroll Tax | Federal Income Tax |
|---|---|---|
| Rate structure | Flat (7.65%) | Progressive (10-37%) |
| What it funds | Social Security, Medicare | General federal spending |
| Reducible with deductions? | Almost never | Yes (standard deduction, 401(k), etc.) |
| Applies from first dollar? | Yes | No (first ~$15,000 excluded by standard deduction) |
| Wage cap? | Social Security capped at $176,100 | No cap |
For workers earning under about $50,000, payroll taxes can actually be a larger burden than federal income tax. Someone earning $35,000 pays about $2,677 in FICA but only about $1,433 in federal income tax after the standard deduction.
How Payroll Taxes Affect Self-Employed Workers
If you are self-employed, there is no employer to split the bill. You pay the full 15.3% as self-employment tax. The silver lining is that you can deduct half of that amount (the "employer share") when calculating your AGI.
Compare 1099 vs W-2 tax treatment using the freelance calculator.
Common Payroll Tax Myths
Myth: "I only pay 7.65% in payroll tax." Reality: While 7.65% comes directly from your check, economists widely agree that the employer's 7.65% share effectively reduces your wages. The total burden is closer to 15.3%.
Myth: "Payroll taxes go into a personal account for me." Reality: Current workers' payroll taxes fund current retirees' Social Security benefits. It is a pay-as-you-go system, not individual savings accounts.
Myth: "I can reduce payroll taxes by contributing to a 401(k)." Reality: 401(k) contributions reduce federal income tax but not Social Security or Medicare tax. Only certain pre-tax benefits through Section 125 plans (like FSA and HSA) can reduce FICA.
See your complete tax picture with the SalaryHog calculator.