Taxes
Employee payroll contribution
Flat rates from the first dollar, unlike progressive income tax brackets. Social Security stops at an annual earnings ceiling; Medicare does not.
The Formula
Payroll Tax = (6.2% x eligible earnings) + (1.45% x all earnings)
Flat rates from the first dollar, unlike progressive income tax brackets. Social Security stops at an annual earnings ceiling; Medicare does not.
| Symbol | Meaning | Unit | Notes |
|---|---|---|---|
| E(capped) | Earnings subject to Social Security | currency | Wages up to the annual contribution and benefit base; wages above that are not taxed for Social Security. |
| E | All earnings | currency | Total wages subject to Medicare tax, with no ceiling. |
What Each Symbol Means
E(capped)currency
Earnings subject to Social Security
Wages up to the annual contribution and benefit base; wages above that are not taxed for Social Security.
Ecurrency
All earnings
Total wages subject to Medicare tax, with no ceiling.
See It Worked With Real Numbers
A formula on its own does not tell you which number goes where. The how to calculate effective tax rate page applies this equation to a concrete case, shows every intermediate step, and names the mistakes that produce a wrong answer even when the algebra is right.
Where This Formula Appears
This equation is the working core of How To Calculate Effective Tax Rate, filed under Finance. Every number the guide produces comes from substituting into this one line.