Your pay stub shows two payroll tax lines, usually labelled something like Social Security and Medicare. Together they take 7.65% of your wages. Most people assume that is the payroll tax on their earnings.
It is half of it. Your employer pays an identical amount on the same wages, and that payment appears nowhere on any document you receive. There are two further payroll taxes on your employment that you will never see at all.
This matters for three practical reasons: it explains why self employment tax feels so brutal, it changes how a contract rate compares to a salary, and it is the reason economists argue you are paying more of your own wages in tax than your stub suggests.
Quick answer
Social Security and Medicare are matched taxes. You pay 6.2% and 1.45%, your employer pays 6.2% and 1.45%, so 15.3% of your wages goes to those two programs. Half of it is visible to you.
The full picture on a $60,000 salary
| Tax | You pay | Your employer pays |
|---|---|---|
| Social Security, 6.2% each | $3,720 | $3,720 |
| Medicare, 1.45% each | $870 | $870 |
| Federal unemployment tax | Nothing | Typically $42 |
| State unemployment tax | Nothing in most states | Varies widely by state and employer |
| Visible on your stub | $4,590 | $0 |
Social Security and Medicare together come to $9,180 on that salary, which is 15.3% of it. Employing you also costs somewhere above $64,600 before any benefits, health cover, or equipment enter the picture.
Federal unemployment tax is small and easily explained: the headline rate is 6% but it applies only to the first $7,000 of each employee’s wages, and employers in good standing receive a credit that brings it down to 0.6%. State unemployment tax is the variable one, since rates depend on the state and on the employer’s own history of claims. A handful of states also collect a small employee contribution, which is one of the few times you would see any of this on a stub.
Who actually pays the employer’s half
Here is where the topic gets more interesting than it first appears, and it is worth presenting as an open argument rather than a settled fact.
The statute splits the tax down the middle. Many economists argue that the split is largely cosmetic, because an employer decides what a role is worth in total and the tax comes out of that total before it reaches you. On that view your wage is lower than it would otherwise be by roughly the amount of the employer’s contribution, so you bear most of both halves.
The counter-argument is that wages are sticky, minimum wages and contracts constrain how far pay can adjust, and in the short run an employer facing a tax increase absorbs some of it rather than passing it through. How much lands on workers in practice is contested and varies by labour market.
Neither position changes your paycheck this month. What the debate does explain is why the self employed are asked for both halves without anyone considering it a double charge.
The self employed pay both, with two consolations
Self employment tax is the same 15.3%, and the logic is that a self employed person is both the employer and the employee. The number lands as a single line rather than being split invisibly, which is why it comes as such a shock.
Two adjustments soften it, and both are frequently missed.
- The base is reduced first. Self employment tax applies to 92.35% of net earnings, not the whole amount. That reduction exists to approximate the fact that an employer’s share would not have been part of the wage.
- Half is deductible. The employer-equivalent portion comes off your income before income tax is calculated, as an above the line deduction available whether or not you itemize.
| $60,000 of earnings | Social Security and Medicare tax |
|---|---|
| As an employee, both halves combined | $9,180 |
| As a self employed person | About $8,478 |
The self employed figure is lower, which surprises people who have been told self employment tax is a penalty. It is not the whole story, since an employee’s half is paid invisibly while a freelancer writes the cheque, and the freelancer has no employer covering unemployment insurance either. But the raw comparison is worth knowing. The mechanics are in Self Employment Tax.
Where the matching breaks down
The neat 50-50 symmetry has two exceptions, and both sit at higher incomes.
The wage base. Social Security tax stops for both parties once wages pass the annual cap, which is $184,500 for 2026. Medicare has no cap and continues on every dollar. So a high earner’s combined rate drops partway through the year, which is covered in Social Security and Medicare Limits for 2026.
The Additional Medicare Tax. An extra 0.9% applies to wages above $200,000 for single filers and $250,000 for joint filers, and there is no employer match on it. It is the one payroll tax that falls on the employee alone. Those thresholds are set in statute and are not indexed, so more workers cross them each year.
What this means for a contract rate
This is the moment the invisible half becomes very visible. Someone leaving a $60,000 salaried job for contract work at what sounds like a better rate is comparing two things that are not comparable.
The employer was paying about $4,590 in matched payroll tax, plus unemployment tax, plus whatever health cover, retirement match, and paid leave were worth. A contractor absorbs the payroll tax side directly and buys the rest themselves. A headline rate that looks like a raise can easily be a pay cut once those land.
There is a real trade in the other direction, since contractors can deduct genuine business expenses and have more control over structure, and those points are weighed in W-2 vs 1099 vs S-Corp. The mistake is comparing headline numbers rather than the whole package.
Sources and notes
Social Security and Medicare rates, the wage base, Additional Medicare Tax thresholds, and self employment tax mechanics follow current IRS guidance and the Social Security Administration’s announced 2026 figures. Federal unemployment tax follows the standard 6% rate on the first $7,000 of wages with the customary 5.4% credit, though employers in states with outstanding federal loans can face a reduced credit.
State unemployment tax rates and wage bases vary by state and by employer, so the figures here are illustrative. The discussion of who ultimately bears the employer share summarises an ongoing economic debate and is not a settled conclusion. This article is for general educational purposes only and should not be treated as personal tax, payroll, or financial advice.
Leave a Reply