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The basics
A salary dollar can face both income tax and payroll tax. Employee wages generally pay one employee share; self-employment income generally carries both sides, with part reflected through an income-tax deduction.
Illustrative numbers
Different sources, different payroll treatment
W-2 salarypayroll + income tax
Pensionincome tax; no payroll tax
Self-employment profit92.35% base; both core shares
Mandatory pension contributionreduces income tax; payroll tax reads the whole wage
The model labels income by source so a pension dollar does not silently receive the same payroll treatment as a wage dollar.
Calculation transparency
How it works in MoneyWhatIf
- 01
Social Security’s 6.2% employee share stops at each person’s indexed wage base; the 1.45% Medicare share has no wage ceiling.
- 02
The 0.9% Additional Medicare amount applies above the modeled single or joint threshold.
- 03
Self-employment uses 92.35% of modeled profit, applies both core shares, and deducts half of the core self-employment tax in the ordinary-income worksheet.
- 04
Where the selected state has an employee payroll levy—such as disability, paid-leave, or transit payroll tax—the projection prices it from that state’s encoded rules and displays it separately from federal payroll tax.
- 05
A mandatory defined-benefit pension contribution entered on an income does not reduce the payroll-tax base. Where the contribution is an employer pick-up under §414(h)(2) it reduces federal and state taxable income, while Social Security and Medicare still read the whole wage — the split the W-2 shows between box 1 and boxes 3 and 5.
Keep in mind
Model limits
The projection does not prepare employment forms, model every business deduction, or allocate complex employer/employee arrangements.
Household Additional Medicare withholding and final liability can differ; this is annual planning treatment.
Employer payroll cost is not treated as spendable household income even when described for context.
This explanation documents the planning model. It is educational, not individualized tax, legal, Medicare, or investment advice.
Where it appears
Where to use it
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The words behind it
Related financial terms
Plain-English definitions, with 2026 figures and worked examples, from the financial terms glossary.