Though federal income taxes often receive more attention, payroll taxes are the larger tax burden for many households. TPC estimates that this year, most people with less than $226,600 in annual income (all but the top 20 percent of the income distribution) will pay more in payroll taxes than federal income taxes.
Payroll taxes are assessed on wages and paid by both employers and employees. They fund social insurance programs, mainly Social Security and Medicare. Almost three-quarters of taxpayers owe them. Of those who do not, many are elderly, have a disability, or are students.
For low- and middle-income people, most taxable income comes from wages—and is thus subject to both income and payroll taxes. In contrast, high-income people often have capital gains, dividends, and interest—which are subject to the income tax, but not the payroll tax.
Taxpayers do not pay Social Security tax on wages over $184,500
Employees and employers pay a combined payroll tax rate of 12.4 percent on wages for Social Security. Employees and employers both pay 6.2 percent on wages up to $184,500. High income people often have wages above this, leaving some untaxed by the Social Security tax.
Policymakers such as Sen. Bernie Moreno (R-OH) and Elizabeth Warren (D-MA) have proposed removing Social Security’s income cap, in part to solve the program's long-term shortfall. This would increase payroll taxes for high-income taxpayers, but the average increase would be modest – and most likely, most high-income families would continue to pay more in income than payroll taxes.
The Medicare payroll tax rate is lower, and higher earners pay a Medicare surtax
Employees and employers pay a combined payroll tax rate of 2.9 percent for Medicare. Employees and employers each pay1.45 percent on wages. Higher income earners face a 0.9 percent surtax on earnings above $200,000 ($250,000 if married).
Workers with low incomes pay less federal income tax
Most taxpayers can deduct a fixed amount of income from the total subject to federal income tax. For married couples, that is $32,200 in 2026. This standard deduction leaves many low-income workers with little to no income subject to federal income tax. The deduction covers just a small share of all income for higher income taxpayers, which is taxed at progressively higher rates.
For lower- and middle-income workers, credits like the child tax credit (CTC) and earned income tax credit (EITC) often offset any remaining federal income tax, especially for families with children. The credits typically deliver a benefit greater than federal income taxes and are received as a tax refund. High-income families cannot benefit from the EITC, and the CTC typically offsets a small share of their income taxes.
Payroll taxes may get less attention than federal income taxes. Most workers pay them automatically through employer withholding in every paycheck, and unlike income taxes, most families do not need to resolve payment of payroll taxes at tax time. Still, payroll taxes contribute almost a third of annual federal revenue, and for low- and moderate-income workers, they’re often higher than income taxes.
