What is the difference between Social Security and Medicare taxes?
The Social Security tax is 6.2% and is based on each employee's earnings (including wages, salaries, bonuses, commissions, etc.) up to the first $128,400 of annual earnings in the calendar year 2018. (The base amount or wage limit amount usually changes each year.) The Social Security tax is withheld from each employee's earnings and is also matched by the employer. This makes the total Social Security tax equal to 12.4% of each employee's annual earnings up to $128,400.
The Medicare tax is 1.45% and is based on each employee's earnings without limit. The Medicare tax is withheld from each employee's earnings and is matched by the employer. This makes the total Medicare tax equal to 2.9% on every dollar of earnings. (There is also a Medicare surtax for higher income taxpayers.)
The combination of Social Security taxes and Medicare taxes is referred to as FICA. Often we refer to the FICA tax rate as 7.65% (6.2% Social Security + 1.45% Medicare) of each employee's first $128,400 of annual earnings in 2018. Employee earnings in excess of $128,400 are taxed only for Medicare at 1.45% for the employee and 1.45% for the employer. This makes the total FICA tax 15.3% (7.65% employee + 7.65% employer) on the first $128,400 and 2.9% (1.45% employee + 1.45% employer) on 2018 earnings in excess of $128,400. (Self-employed persons are responsible for both the employee and employer portions.)
Social Security involves retirement and disability benefits. Medicare involves health care for people 65 years of age and older.