You probably remember the feeling you had when you received your first paycheck. You couldn’t wait to bring that money to the bank. It was a symbol of your newfound freedom to spend what you earned and maybe save a bit, too. But as your finger glided across that paystub, you began to notice some disturbing things written there. Words like FICA and numbers like 7.65%. Payroll taxes.
Were you expecting those? If not, they can be a shocker. The Tax Foundation has written a primer on payroll taxes for those who aren’t familiar. Alex Durante writes:
The Federal Insurance Contributions Act (FICA) applies a 12.4 percent tax on payroll, split between the employee and the employer, to support both the OASI and the Disability Insurance (DI) trust funds.[4] The tax applies only to the first $184,500 in wage and salary income for 2026 and is adjusted for inflation every year.[5]
An additional 2.9 percent payroll tax, also split between the employee and employer, is applied under MEDFICA to finance the Medicare HI trust fund.[6] Unlike FICA, which is subject to a payroll tax cap, the Medicare tax applies to all earned income. Together, FICA and MEDFICA bring the total payroll tax to 15.3 percent of wage and salary income for most earners. Self-employed workers are subject to the same tax under the Self-Employed Contributions Act (SECA), although they may deduct the employer-side portion, 7.65 percent, from their income.[7]
Certain high-income earners are also subject to the additional Medicare tax. It was introduced as part of the Affordable Care Act in 2009 to support the Medicare program and first took effect in 2013.[8] Unlike MEDICARE, the revenues raised through the additional Medicare tax are not directly earmarked for the HI trust fund. Single and joint filers with more than $200,000 or $250,000 in earned income, including self-employed earners, must pay an additional 0.9 percent in payroll taxes on income exceeding those thresholds.[9] Unlike the payroll tax cap that applies to FICA, the thresholds for the additional Medicare tax are not indexed for inflation, subjecting an increasing share of earners to the tax over time.
Action Line: Like all taxes, there’s a lot more nuance to understand. Read Durante’s entire piece here, and discuss it with your children or grandchildren who are entering the workforce. After you talk taxes, be sure to talk savings. Give them a copy of Your Survival Guy’s Special Report: How To Invest After Graduating College.
