- Paychecks Decoded
- Paychecks Decoded: Why Social Security Tax Stops and Medicare Tax Does Not (you are here)
This is part 2 of 2 of our guide to Paychecks Decoded. It picks up where Paychecks Decoded leaves off, and it is written to stand on its own: the key ideas are restated where you need them.
The two FICA taxes fund different promises. Social Security benefits are calculated only on earnings up to the annual wage base, so the 6.2% tax stops there too: $184,500 in 2026. Medicare‘s 1.45% has no cap, and a 0.9% Additional Medicare Tax applies to wages above $200,000 for single filers ($250,000 married filing jointly). Employers must begin withholding it once your wages with them pass $200,000 in a year, whatever your filing status.
Take a $200,000 salary paid biweekly with no pre-tax premiums: $200,000 ÷ 26 = $7,692.31 a check. Cumulative wages cross $184,500 during check 24 ($184,500 ÷ $7,692.31 = 23.99), which carries only $469.77 of Social Security tax, and checks 25 and 26 carry none, so each is $7,692.31 × 6.2% = $476.92 larger than in January. Budget on the January check; the December bump is temporary. With two employers, each withholds Social Security up to $184,500 on its own wages; anything withheld above $184,500 × 6.2% = $11,439 in total comes back as a credit on your return.
The worked example assumes one job, one salary, the same check every two weeks and no state tax. Each of these breaks one of those assumptions:
| Situation | What changes | Why | Number or rule |
|---|---|---|---|
| Two jobs at once | Each employer withholds as if its job were the only one | Each applies the full standard deduction and the lowest brackets | Single filer, $75,000 + $25,000 (no pre-tax deductions): $7,670 + $890 withheld against $13,170 owed, $4,610 short; Step 2 of Form W-4 fixes it (9.3) |
| A bonus or commission check | Withheld at a flat rate or by the aggregate method | Supplemental-wage rules | 22% federal; 37% above $1 million of supplemental pay in a year |
| Overtime | Withheld as wages, FICA included; part of it may be deductible on the return | The 2025–2028 overtime deduction lowers income tax only | The premium (“half”) part of time-and-a-half, up to $12,500 ($25,000 joint), phasing out above $150,000 of modified AGI ($300,000 joint); claim it early via W-4 Step 4(b) |
| Pay above $184,500 | Social Security withholding stops for the rest of the year | The wage base caps the tax | $476.92 more per check for a $200,000 earner (above) |
| A year with 27 biweekly paydays | If your employer spreads salary over 27 checks, each is smaller | Some calendar years hold 27 paydays on a two-week cycle | $75,000 ÷ 27 = $2,777.78 instead of $2,884.62; fixed-dollar deductions are taken 27 times |
| Semimonthly pay | 24 checks of $3,125.00 instead of 26 of $2,884.62 | Pay dates fixed to the 15th and month-end | On a biweekly schedule two months a year bring a third check; budget on two |
| A wage garnishment | A court order takes part of disposable pay | Consumer Credit Protection Act, Title III | Ordinary debts: the lesser of 25% of disposable earnings or the amount above 30 × $7.25 = $217.50 a week; support orders up to 50%–65% |
| A state income tax | Another withholding line appears | Most states tax wages | Flat 5% in the worked example above: $130.58 a check |
Any row in that table is a reason to rerun the IRS Tax Withholding Estimator with a recent pay stub. Section 9.3 walks through each step of Form W-4 and the safe harbors that decide whether a shortfall costs a penalty.
First, contribute at least the percentage that earns the full employer match before taking any extra take-home pay: on this household’s numbers each $1 of take-home given up buys $1.92 of contributions. Then rerun the IRS Tax Withholding Estimator whenever you or a spouse start a second job, your pay changes by a bonus, raise or overtime, or last year’s return ended with a refund larger than one net paycheck or a balance due of $1,000 or more (the level at which the underpayment penalty can start). With exactly two jobs in the household, check Step 2(c) on both Forms W-4 if the lower pay is more than half of the higher; otherwise use the Step 2(b) worksheet or the estimator.
Assumptions: all income is W-2 wages and you take the standard deduction. Ignore the rule when you have self-employment or other untaxed income: then withholding alone rarely fits, and quarterly estimated payments (9.3) do the job.
Two working spouses who leave Step 2 of Form W-4 blank. A married couple earning $75,000 and $60,000 each files a W-4 marked “married filing jointly.” Each employer then subtracts the full $32,200 joint standard deduction and uses the joint brackets as if its paycheck were the household’s only income: ($75,000 − $32,200) taxed at joint rates is $4,640 withheld; ($60,000 − $32,200) is $2,840. Together $7,480. The couple’s actual tax on $135,000 − $32,200 = $102,800 is $12,040, so $4,560 is due in April, above the $1,000 line where an underpayment penalty can apply (9.3). (Simplified: no pre-tax deductions, credits or state tax.)
How to avoid it: both spouses check the Step 2(c) box. Each job then withholds with half the joint deduction and half-width brackets: $7,670 + $5,020 = $12,690, which is $650 more than owed, a small refund instead of a bill. With very unequal pay, the estimator gets closer still.
Why is my paycheck smaller than I expected?
Because four things leave before it arrives: pre-tax deductions such as a 401(k) and health premiums, Social Security and Medicare (7.65%), federal income tax withholding, and any state or local tax. On a $75,000 salary paid biweekly, $2,884.62 of gross pay becomes $2,163.60, or 75.0%, in a state with no income tax. Compare each line of your stub with the percentages you elected.
What percentage of my paycheck goes to taxes?
For the running $75,000 single filer, federal income tax and FICA together take $234.92 + $213.02 = $447.94 of a $2,884.62 check, about 15.5%. FICA is a flat 7.65% up to the Social Security wage base; income tax is lower in percentage terms than your 22% bracket suggests, because lower brackets apply first. A state income tax adds its own share.
Why is my bonus taxed so much?
It usually isn’t taxed more; it is withheld differently. Employers commonly withhold a flat 22% federal rate on bonuses, plus 7.65% FICA, so a $3,000 bonus nets about $2,110.50. If your top bracket is 12%, the extra withholding comes back when you file. If the bonus is added to a regular check, withholding is computed as if you earned that much every period, which can briefly look even higher.
Do I still pay tax on overtime in 2026?
Yes for Social Security and Medicare, and partly for income tax. For 2025 through 2028, you can deduct the premium part of required overtime, the “half” of time-and-a-half, up to $12,500 ($25,000 joint), with the deduction phasing out above $150,000 of modified AGI ($300,000 joint). Employers still withhold on overtime as wages; you can reflect the deduction in Step 4(b) of the 2026 Form W-4.
Should I check the box in Step 2 of my W-4?
Check it only if your household has exactly two jobs, yours and a second job or a working spouse’s, and check it on both forms. It splits the standard deduction and brackets between the jobs, which is accurate when the two pays are similar. If the lower pay is less than half of the higher, the Step 2(b) worksheet or the IRS estimator is more accurate.
A paycheck moves through four stages: gross pay, pre-tax deductions, taxes withheld, and net pay. On the running $75,000 salary paid biweekly, gross of $2,884.62 loses $173.08 to a 6% traditional 401(k), $100.00 to a cafeteria-plan health premium, $213.02 to FICA and $234.92 to federal income tax, leaving $2,163.60, or 75.0% of gross, in a state with no income tax. The two taxes use different bases: FICA at 7.65% skips only the cafeteria-plan premium, while income tax also skips the 401(k) and the 2026 standard deduction of $16,100, leaving $51,800 taxable. Because each bracket taxes only its own slice, the 22% marginal rate produces an effective rate of just 8.1% of gross, and the $4,500 a year going into the 401(k) saves about $990 of federal tax at that 22% rate. If your state taxes income, recompute net pay first and budget from that figure.
Two questions on this chapter. Decide on your answer first, then click “Reveal Answer.”
1. A married couple earns $75,000 and $60,000 in 2026. Each files a Form W-4 marked married filing jointly and leaves Step 2 blank; there are no pre-tax deductions or credits. About how much will they owe in April?
- $0, because each employer already uses the joint brackets
- $990
- $650
- $4,560
Reveal Answer
Answer: D. Each job subtracts the full $32,200 and withholds $4,640 + $2,840 = $7,480, but tax on $135,000 − $32,200 = $102,800 is $12,040; $12,040 − $7,480 = $4,560. Checking Step 2(c) on both forms gives $12,690 withheld instead. (Part 1.6: Paychecks Decoded)
2. An employee earning $200,000 a year, paid biweekly with no pre-tax deductions, notices that the last two checks of 2026 are larger than the first. By how much is each larger?
- $588.46
- $111.54
- $469.77
- $476.92
Reveal Answer
Answer: D. Each check is $200,000 ÷ 26 = $7,692.31. Wages pass the $184,500 Social Security wage base during check 24, so checks 25 and 26 carry no 6.2% tax: $7,692.31 × 6.2% = $476.92. Medicare’s 1.45% has no cap. (Part 1.6: Paychecks Decoded)