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What is the difference between Social Security and Medicare payroll taxes?

Author:
Harold Averkamp, CPA, MBA

Social Security Payroll Tax

The Social Security payroll tax is 6.2% and is based on each employee’s earnings (wages, salaries, bonuses, commissions, etc.) up to a specified annual ceiling, limit, or maximum.

In the calendar year 2022, the Social Security payroll tax rate of 6.2% is applied to each employee’s earnings up to the maximum of $147,000. The amount withheld from employees is then matched by the employer. As a result, the total Social Security tax in 2022 is equal to 12.4% of each employee’s annual earnings up to a maximum earnings amount of $147,000.

In the calendar year 2023, the Social Security payroll tax rate of 6.2% is applied to each employee’s earnings up to the maximum of $160,200. The Social Security tax withheld from employees is then matched by the employer. As a result, the total Social Security tax in 2023 is equal to 12.4% of each employee’s annual earnings up to a maximum earnings amount of $160,200.

Medicare Payroll Tax

The Medicare payroll tax is 1.45% and is based on each employee’s earnings without limit. The Medicare tax withheld from employees is then matched by the employer. This makes the total Medicare tax equal to 2.9% on every dollar of employees’ 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 payroll taxes and Medicare payroll 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 $147,000 of annual earnings in 2022 and the first $160,200 of annual earnings in 2023. Each employee’s earnings in excess of the annual ceiling amount are taxed only for Medicare (1.45% for the employee and 1.45% for the employer). As mentioned above, there is also an Additional Medicare Tax that is withheld from high income employees’ pay, but not matched by the employer.

Self-employed persons are responsible for both the employee and employer portions of FICA.

Social Security involves retirement and disability benefits. Medicare involves health care for people 65 years of age and older.

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About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.

Learn More About Harold

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