OASDI is a federal payroll tax that funds Social Security and Medicare

OASDI stands for Old-Age, Survivors, and Disability Insurance. It is the federal tax taken from your paycheck to fund Social Security retirement benefits, survivor benefits for families of deceased workers, and disability benefits. You will see it listed on your pay stub as "Social Security tax" or sometimes as part of "FICA taxes" (Federal Insurance Contributions Act).

The OASDI tax rate is 6.2 percent of your gross wages, up to a wage cap that changes each year. Your employer matches this 6.2 percent, so the total contribution to the system is 12.4 percent. If you are self-employed, you pay both the employee and employer portions yourself, which comes to 15.3 percent of your net self-employment income.

The money you pay in OASDI taxes does not sit in a personal account with your name on it. Instead, it goes into a trust fund that pays current beneficiaries — retirees, disabled workers, and surviving family members. When you reach retirement age or become disabled, your own benefits are drawn from what current workers are paying in.

Key Takeaways

  • OASDI tax is 6.2 percent of your wages, taken from your paycheck and matched by your employer, for a total of 12.4 percent going into the Social Security system.
  • The tax applies only to wages up to an annual cap, which was $168,600 in 2024 and increases each year based on wage growth.
  • Self-employed workers pay the full 12.4 percent themselves because they are both employee and employer.
  • OASDI funds retirement, survivor, and disability benefits; it is separate from Medicare tax, which is 2.9 percent and has no wage cap.

How the wage cap affects what you pay

Not all of your income is subject to OASDI tax. The government sets a wage cap each year — the maximum amount of earnings that can be taxed for Social Security. In 2024, that cap was $168,600. This means if you earn $200,000 in a year, you only pay OASDI tax on the first $168,600.

The wage cap increases annually based on changes in average national wages. If you work for multiple employers in the same year, you may pay more OASDI tax than necessary if your combined wages exceed the cap. You can claim a credit for the overpayment when you file your federal income tax return.

High earners pay a smaller percentage of their total income in OASDI tax because of this cap. A person earning $500,000 pays the same total OASDI tax as someone earning $168,600, even though their income is much higher.

OASDI versus Medicare tax on your paycheck

OASDI and Medicare are both payroll taxes, and both are part of FICA, but they fund different programs and work differently. OASDI is 6.2 percent and has the annual wage cap. Medicare tax is 2.9 percent and has no wage cap — you pay it on all your earnings, no matter how high.

Together, OASDI and Medicare make up 15.3 percent of your paycheck (or 15.3 percent of your self-employment income if you are self-employed). Your employer covers half of both taxes if you are a W-2 employee. If you are self-employed, you pay all of it.

High-income earners also pay an additional 0.9 percent Medicare tax on wages above $200,000 (or $250,000 for married couples filing jointly). This extra tax has no cap and funds Medicare as well.

Who pays OASDI tax and who does not

Most workers in the United States pay OASDI tax. If you receive a W-2 from an employer, OASDI is automatically withheld from your paycheck. If you are self-employed, you calculate and pay it yourself when you file your tax return.

Some government employees hired before 1984 do not pay OASDI tax because they are covered by a different retirement system. Railroad workers have their own system. Certain nonresident aliens and students on work visas may be exempt in specific situations.

If you work for a nonprofit organization or a church, you may or may not pay OASDI tax depending on whether your employer has opted out of the Social Security system. Ask your payroll department if you are unsure.

What OASDI tax pays for

Your OASDI contributions fund three types of benefits. Retirement benefits go to workers who reach full retirement age (currently between 66 and 67, depending on birth year). Survivor benefits go to the spouse, children, and dependent parents of a worker who dies. Disability benefits go to workers under full retirement age who become unable to work due to a medical condition expected to last at least 12 months or result in death.

The amount you receive in benefits is based on your earnings history and the age at which you claim. Higher lifetime earnings mean higher benefits. Claiming at a younger age means lower monthly payments; claiming at an older age means higher monthly payments.

OASDI is not means-tested, meaning your benefits do not depend on how much money you have or earn after you start receiving them. However, if you claim before full retirement age and continue working, your benefits may be reduced based on your earnings.

How to read OASDI on your pay stub

Look for a line labeled "Social Security" or "OASDI" on your pay stub. It will show the amount withheld from your current paycheck. You will also see a year-to-date total, which tells you how much you have paid so far in the calendar year.

If your year-to-date OASDI reaches the wage cap before the end of the year, the withholding will stop. This happens to people who earn high salaries or who work multiple jobs. Once you hit the cap, no more OASDI tax is taken from your remaining paychecks that year.

Your employer's matching contribution does not appear on your pay stub, but it is being paid to Social Security on your behalf. You can see your lifetime OASDI earnings and estimated benefits by creating an account on the Social Security Administration website.

Self-employed workers and OASDI

If you are self-employed, you pay OASDI tax as part of your self-employment tax when you file your annual tax return. You calculate it on Schedule SE (Self-Employment Tax) using your net self-employment income.

The self-employment tax rate is 15.3 percent total — 12.4 percent for OASDI and 2.9 percent for Medicare. You pay both the employee and employer portions. However, you can deduct half of your self-employment tax as an adjustment to income on your tax return, which reduces your taxable income.

Self-employed workers must pay estimated tax quarterly if they expect to owe $1,000 or more in federal income tax and self-employment tax combined. This keeps you from owing a large amount when you file your return.

Frequently Asked Questions

Can I opt out of paying OASDI tax?

No. OASDI tax is mandatory for nearly all workers in the United States. The only exceptions are certain government employees hired before 1984, railroad workers covered by their own system, and some nonresident aliens. If you are a W-2 employee or self-employed, you must pay.

What happens if I work multiple jobs and exceed the wage cap?

You may overpay OASDI tax if your combined earnings from all jobs exceed the annual wage cap. When you file your federal income tax return, you can claim a credit for the excess OASDI tax paid. The IRS will refund the overpayment or explore it to other taxes you owe.

Does OASDI tax count toward my income tax?

No. OASDI is a separate tax from federal income tax. The amount withheld for OASDI does not reduce the amount of federal income tax you owe. Both are taken from your paycheck, but they fund different programs and are calculated separately.

Will OASDI be available when I retire?

The Social Security trust fund is projected to have sufficient reserves through 2034 based on current law. After that date, incoming OASDI tax revenue would cover about 80 percent of scheduled benefits unless Congress changes the law. This is a policy question, not a certainty about your personal benefits.