Many older Americans are continuing to work well past traditional retirement age. A 76-year-old Walmart employee recently asked why they still owe payroll taxes despite claiming Social Security at 62.
Payroll taxes fund Social Security and Medicare. The Federal Insurance Contributions Act (FICA) requires employers to withhold these taxes from wages, regardless of a worker’s age. There is no age exemption for payroll tax obligations.
Even after someone begins collecting Social Security benefits, working and earning wages still triggers payroll tax deductions. This surprises many retirees who assume payments stop once they start receiving benefits.
The current payroll tax rate is 7.65% for employees. This includes 6.2% for Social Security and 1.45% for Medicare. Employers also pay a matching amount.
There is a cap on earnings subject to the Social Security portion of payroll taxes. For 2025, that cap is $176,100. Beyond that threshold, workers stop paying Social Security tax for the year, but the Medicare portion still applies to all wages.
Older workers may qualify for the Social Security earnings test if they claim benefits before full retirement age. But this test affects benefit amounts, not payroll tax obligations. It reduces benefits for earnings above certain limits, but payroll taxes still apply.
The Walmart worker at 76 has no special exemption from payroll taxes because none exists for age or benefit status. The only way to avoid these taxes is to stop earning wages.
Many retirees rely on part-time work to supplement fixed incomes. Understanding tax obligations can help them plan better for the financial realities of returning to the workforce.
