Social Security Payroll Tax
The Social Security payroll tax is 6.2% and is based on each employee's earnings (including wages, salaries, bonuses, commissions, etc.) up to a specified annual ceiling, limit, or maximum.
In the calendar year 2020, the Social Security payroll tax rate of 6.2% is applied to each employee's earnings up to the maximum of $137,700. The 6.2% that is withheld from the employee is also matched by the employer. As a result, the total Social Security tax in 2020 for an employee is equal to 12.4% of each employee's annual earnings up to a maximum earnings amount of $137,700.
In the calendar year 2021, the Social Security payroll tax rate of 6.2% is applied to each employee's earnings up to the maximum of $142,800. The 6.2% that is withheld from the employee is also matched by the employer. As a result, the total Social Security tax in 2021 for an employee is equal to 12.4% of each employee's annual earnings up to a maximum earnings amount of $142,800.
Medicare Payroll Tax
The Medicare payroll 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 also matched by the employer. This makes the total Medicare tax equal to 2.9% on every dollar of earnings. (There is also an Additional Medicare Tax for high income employees and high income self-employed individuals. However, the Additional Medicare Tax is not matched by the employer.)
FICA Payroll Tax
The combination of Social Security taxes and Medicare taxes is referred to as FICA. We often refer to the FICA tax rate as 7.65% (6.2% Social Security + 1.45% Medicare) of each employee's first $137,700 of annual earnings in 2020 and the first $142,800 of annual earnings in 2021. Each employee's earnings in excess of the annual ceiling amount are taxed only for Medicare at 1.45% for the employee and 1.45% for the employer. (However, there is also an Additional Medicare Tax that is withheld from high income employees' pay, but the employer does not match the Additional Medicare Tax amounts.)
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.
