• Payroll taxes, which fund Social Security tax, Medicare Hospital Insurance (HI), unemployment compensation, and various smaller retirement programs, accounted for 34 percent of federal revenues in 2007, roughly $870 billion.
• The payroll tax share of federal revenues has grown from about one-sixth in 1960 to more than one-third today, in large part because of Medicare’s advent in 1965 and a sharp increase in Social Security taxes in 1983.
  Source: Historical Amount of Revenue by Source
• The Federal Insurance Contributions Act mandates collection of Social Security and Medicare taxes and is the source of the acronym “FICA” tax.
• Employees and employers each pay a 6.2 percent Social Security tax, yielding a combined rate of 12.4 percent. The tax applies to the first $102,000 of annual earnings in 2008 (indexed each year by the change in average worker’s pay); the maximum tax in 2008 is thus $6,324 each for employees and employers.
  Source: Historical Payroll Tax Rates
• Employees and employers also each pay a Medicare tax equal to 1.45 percent of all wages, or a total of 2.9 percent; unlike the Social Security tax, there is no limit on the Medicare tax.
• Self-employed workers pay both the employee and employer portions of the tax: 12.4 percent for Social Security tax and 2.9 percent for Medicare, a total of 15.3 percent subject to the cap on earnings subject to Social Security tax.
• Although both employees and employers pay FICA taxes, most economists believe that the employer’s share is fully offset by reduced wages and thus the entire economic burden of the tax ultimately falls on workers.
• Congress has raised the Social Security tax rate 21 times and the Medicare tax nine times since the inception of each program. Neither tax has been changed since 1990.
  Source: Historical Payroll Tax Rates

Click for underlying data

• The Federal Unemployment Tax Act (FUTA) funds state unemployment insurance programs with a tax on employers equal to 0.8 percent tax of the first $7,000 of earnings for each worker. (That tax rate includes a periodically-extended 0.2 percent surtax.) Employers in some states also pay state unemployment payroll taxes.
  Source: State Unemployment Tax Rates
• The single rate and the cap on taxable earnings combine to make payroll taxes regressive (taxes fall as a share of income as income rises).
  Source: Distribution of Federal Payroll and Income Taxes by Cash Income Class, 2006
• Payroll tax exceeded income taxes in 2006 for 44 percent of all taxpayers. That share rises above 66 percent if both employer and employee parts of the tax are included. However, the Social Security program appears to be progressive if both benefits and taxes are taken into account.
• Concerned about the long-term solvency of Social Security, Congress has considered a proposal to eliminate the cap on taxable Social Security wages; that change would generate an extra $128 billion in revenue in 2010.
  Source: Options to Adjust Social Security Earnings Cap, Static Impact on Individual Income and Payroll Tax Liability and Revenue, 2009-18

Additional information on payroll taxes:

• For estimates of the distributional effects of payroll taxes, see Distribution of Federal Payroll and Income Taxes by Cash Income Class, 2006.
• For estimates of the payroll tax various reforms, see:
  • Options to Adjust Social Security Earnings Cap, Static Impact on Individual Income and Payroll Tax Liability and Revenue, 2009-18.
  • Change Social Security Rate to 5.35% and Eliminate the Cap on Social Security, Static Impact on Revenue ($ billions), 2009-13.
• For estimates of the payroll tax burden for sample families, see Payroll Tax Liability for Sample Families by Type of Filer for Tax Year 2006.

Payroll Tax Statistics:

• Historical data on payroll tax receipts
• Payroll tax burdens for sample families
• Historical tax rates for the Social Security tax and HI program.

Further reading:

• For general discussion of the payroll tax, see Payroll Tax, Federal by Maureen Griffin. 1999.
• For discussions of the distributional effects of Social Security, see
  • How Progressive Is Social Security When Old Age and Disability Insurance Are Treated as a Whole? by Eugene Steuerle, Adam Carusso, and Lee Cohen, 2004,
  • Lifetime Distributional Effects of Social Security Retirement Benefits by Karen Smith, Eric Toder, and Howard Iams. 2001,
  • Lifetime Social Security and Medicare Benefits by Eugene Steuerle and Adam Carusso
• For comparisons of income tax and payroll tax burden, see
  • Two-Thirds of Tax Units Pay More Payroll Tax Than Income Tax by Leonard Burman and Greg Leiserson. 2006,
  • Three-Quarters of Filers Pay More in Payroll Taxes Than in Income Taxes by William Gale and Jeff Rohaly. 2003.
• For a comment on proposals to increase payroll taxes, see Higher Payroll Taxes? Why?” by Harry Holtzer. 2003.
• Click here to see all Publications related to Payroll Taxes.
• Click here to see all Estimates related to Payroll Taxes.
• Click here to see all Tax Facts related to Payroll Taxes.