OASDI is the payroll tax that funds Social Security and Medicare

OASDI stands for Old-Age, Survivors, and Disability Insurance. It is the payroll tax taken from your paycheck to fund Social Security retirement benefits, survivor benefits for your family if you die, and Social Security Disability Insurance (SSDI). When you see "Social Security tax" on your pay stub, that is OASDI.

The tax is split into two parts: 6.2% goes to Social Security retirement and disability, and 1.45% goes to Medicare hospital insurance. Your employer matches both amounts, so the total is 15.3% of your wages — but you only see half of it deducted from your paycheck. Self-employed people pay the full 15.3% themselves.

There is a wage cap on Social Security tax: in 2024, you stop paying the 6.2% Social Security portion once you earn $168,600 in a year. Medicare tax has no cap, so high earners pay 1.45% on all wages. This is why people with very high incomes see Social Security tax stop partway through the year but Medicare tax continue.

Key Takeaways

  • OASDI taxes fund three programs: Social Security retirement, survivor benefits, and Social Security Disability Insurance.
  • The rate is 6.2% for Social Security and 1.45% for Medicare, taken directly from your paycheck, with your employer matching both amounts.
  • Social Security tax stops once you reach the annual wage cap ($168,600 in 2024), but Medicare tax continues on all earnings.
  • Self-employed workers pay both the employee and employer portions themselves, totaling 15.3%.
  • The money you pay in now funds current retirees and disabled workers, not a personal account in your name.

How much OASDI tax comes out of your paycheck

If you are a regular employee, you see 7.65% deducted from your gross pay: 6.2% for Social Security and 1.45% for Medicare. This is taken before income tax is calculated. Your employer then pays an equal 7.65% on your behalf to the Social Security and Medicare trust funds.

The amount you pay depends on your gross wages, not your net pay. If you earn $50,000 a year, you pay $3,100 in Social Security tax and $725 in Medicare tax. If you earn $200,000, you pay $10,453.20 in Social Security tax (capped at the wage limit) and $2,900 in Medicare tax.

If you work multiple jobs, you can end up paying Social Security tax on more than the wage cap across all jobs combined. For example, if you earn $100,000 at one job and $80,000 at another, you pay the full 6.2% on both, even though the combined total exceeds the cap. You can claim a credit for the overpayment when you file your income tax return.

Where OASDI money goes

OASDI taxes fund three separate programs run by the Social Security Administration. The 6.2% Social Security portion is split between retirement benefits (about 5.3%) and disability benefits (about 0.9%), though these percentages shift slightly year to year depending on how many people are drawing from each fund. The 1.45% Medicare portion goes to the Hospital Insurance Trust Fund, which covers inpatient hospital care, skilled nursing, hospice, and home health services.

The money does not sit in an account with your name on it. Instead, current OASDI tax revenue pays current beneficiaries — retirees, disabled workers, and survivors of workers who have died. When you retire, your benefits will be paid by workers who are employed at that time. This is called a pay-as-you-go system.

The Social Security Administration publishes annual reports showing how much money flows in and out of each trust fund. You can see your own estimated benefits by creating an account at ssa.gov and viewing your Social Security Statement, which shows your earnings history and projected retirement benefit amount based on current law.

The wage cap and why it matters

The Social Security wage cap changes every year based on average wage growth in the country. In 2024, the cap is $168,600. This means if you earn $200,000, you only pay Social Security tax on the first $168,600 of that income. The remaining $31,400 is not subject to the 6.2% Social Security tax.

Medicare tax has no wage cap at all. High earners also pay an additional 0.9% Medicare tax on wages above $200,000 (or $250,000 if married filing jointly), which was added in 2013. This extra tax goes to Medicare and is not matched by employers.

The wage cap means that people earning below it pay a higher percentage of their total income in OASDI taxes than high earners do. Someone earning $50,000 pays OASDI tax on 100% of their income. Someone earning $500,000 pays it on only about 34% of their income, because the cap stops the Social Security portion at $168,600.

Self-employed OASDI taxes

If you are self-employed, you pay both the employee and employer portions of OASDI tax yourself. This is called self-employment tax, and it totals 15.3% of your net self-employment income (after deducting half of the self-employment tax itself). You pay this on Schedule SE when you file your income tax return.

Self-employed people can deduct half of their self-employment tax as a business expense on their income tax return, which reduces their taxable income. This partially offsets the fact that they pay both sides of the tax. The wage cap still applies — you only pay the 6.2% Social Security portion on self-employment income up to $168,600 in 2024.

If you have both W-2 wages and self-employment income, the wage cap applies to your combined earnings. If you earned $150,000 as an employee and $30,000 from self-employment, you would pay Social Security tax on $168,600 total (the cap), not on all $180,000.

OASDI taxes and your future benefits

The amount of OASDI tax you pay does not directly determine your future benefits. Instead, Social Security looks at your 35 highest-earning years and calculates a benefit based on your average earnings. Paying more in taxes generally means you earned more, which usually means a higher benefit — but the relationship is not one-to-one.

Social Security benefits are also based on your age when you start collecting. If you start at 62, your benefit is smaller than if you wait until 67 or 70. Your family members may also be may have access to to benefits based on your earnings record — spouses, ex-spouses, and children can draw on your Social Security account even if they paid little or no OASDI tax themselves.

To see how much you might receive, you can view your Social Security Statement at ssa.gov. It shows your earnings history, confirms that your OASDI taxes are being credited to your account, and gives you an estimate of your retirement benefit at different ages. The statement updates once a year.

Common questions about OASDI taxes

Many people wonder whether OASDI taxes will still be there when they retire. The Social Security trust funds are projected to have enough money to pay full benefits through 2034 under current law. After that, incoming tax revenue would cover about 80% of scheduled benefits unless Congress changes the tax rate, the wage cap, or the benefit formula. This is a long-standing policy question, not a sudden crisis.

Another common question is whether you can opt out of OASDI taxes. You cannot — OASDI tax is mandatory for all employees and self-employed people. The only exceptions are certain government employees hired before specific dates who are covered by different pension systems, and some religious groups that have been granted exemptions.

Frequently Asked Questions

Why do I pay OASDI tax if I might not get it back?

OASDI is insurance, not a savings account. You pay in to protect yourself against retirement, disability, or death — and to protect your family if you die. Most people who reach retirement age collect more in benefits than they paid in taxes, especially if they live into their 80s or 90s. The program is designed to provide a foundation of income security, not to be a break-even investment.

What happens to OASDI taxes if I die before I retire?

Your family may receive survivor benefits. Your spouse, ex-spouse, children under 19 (or 23 if in school), and dependent parents can all draw benefits based on your earnings record. The total amount your family receives is limited, but it can be substantial. You do not lose the taxes you paid — they go toward protecting your family instead of toward your own retirement.

Can I get a refund of OASDI taxes if I move out of the country?

No. OASDI taxes are not refundable. However, if you worked in the United States and paid into Social Security, you may still be may have access to to benefits if you return to the U.S. or meet other conditions. Some countries have agreements with the United States that allow people to combine work credits from both countries. You can contact the Social Security Administration to learn about your specific situation.

Do OASDI taxes explore to tips and bonuses?

Yes. OASDI tax applies to all wages and compensation, including tips, bonuses, and commissions. Tips should be reported to your employer, and your employer will withhold OASDI tax on them. If you receive cash tips that you do not report, you are still legally required to pay OASDI tax on them when you file your tax return.

Why is there a wage cap on Social Security tax but not on Medicare tax?

Congress set the wage cap to limit how much high earners pay into Social Security while keeping benefits tied to earnings. Medicare has no cap because it is structured differently — it is meant to provide universal hospital insurance for people 65 and older, regardless of how much they earned. The extra 0.9% Medicare tax on high earners was added in 2013 to help fund the Affordable Care Act.