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 withheld from your paycheck to fund Social Security retirement benefits, survivor benefits for your family if you die, and disability benefits if you become unable to work. You will see it listed on your pay stub as "OASDI" or sometimes as "Social Security tax."

The tax rate is 6.2 percent of your wages, and your employer matches that amount—meaning 12.4 percent total goes into the system. If you are self-employed, you pay both the employee and employer portions yourself, which comes to 15.3 percent when combined with Medicare tax. The money is not held in a personal account with your name on it; it goes into a single trust fund that pays current beneficiaries.

OASDI is separate from Medicare tax, though both are withheld from the same paycheck. Medicare tax is 1.45 percent (2.9 percent if self-employed), and there is no wage cap on how much you pay. OASDI, by contrast, has a wage base limit—in 2024, you only pay OASDI tax on the first $168,600 of income. Earnings above that are not subject to OASDI tax.

Key Takeaways

  • OASDI tax is 6.2 percent of your wages (12.4 percent total with employer match), withheld automatically from your paycheck.
  • The money funds three programs: retirement benefits at age 62 or later, survivor benefits if you die, and disability benefits if you cannot work.
  • You only pay OASDI tax on income up to an annual wage cap, which changes each year based on inflation.
  • Your employer matches your OASDI contribution, but the full amount is credited toward your future benefits.
  • OASDI is separate from Medicare tax and is tracked separately on your Social Security record.

How OASDI tax builds your Social Security record

Every dollar of OASDI tax you pay is recorded on your Social Security record under your Social Security number. The Social Security Administration tracks your earnings year by year and uses the highest 35 years of earnings to calculate your future benefit amount. You do not need to do anything to build this record—it happens automatically when your employer reports your wages.

You earn "credits" toward Social Security benefits based on how much you earn each year. In 2024, you earn one credit for every $1,730 of wages, up to a maximum of four credits per year. You need 40 credits total to be may be able to access for retirement benefits, which typically takes about 10 years of work. Disability and survivor benefits have different credit requirements, but they also depend on your OASDI tax contributions.

If you do not work long enough to earn 40 credits, you will not receive retirement benefits under your own record. However, you may be able to receive benefits as a spouse or survivor based on someone else's record, depending on your age and relationship to that person.

The wage cap and how it affects what you pay

OASDI tax is only withheld on earnings up to a certain limit each year. In 2024, that limit is $168,600. If you earn $200,000 in a year, you pay OASDI tax only on the first $168,600; the remaining $31,400 is not subject to OASDI tax. This wage cap is adjusted annually based on changes in average wages across the country.

The wage cap means that higher earners pay a smaller percentage of their total income in OASDI tax than lower earners do. Someone earning $50,000 pays OASDI tax on all of it. Someone earning $500,000 pays OASDI tax on only about one-third of their income. However, the benefit formula is also adjusted so that higher earners do not receive proportionally higher benefits.

If you work for more than one employer in the same year, each employer withholds OASDI tax based on what they pay you, without knowing about your other jobs. You might end up overpaying OASDI tax if your combined earnings exceed the wage cap. When you file your income tax return, you can claim a credit for the overpayment.

OASDI tax versus Medicare tax and income tax

Three different taxes are withheld from most paychecks: OASDI (Social Security), Medicare, and federal income tax. They serve different purposes and have different rules. OASDI and Medicare are called "payroll taxes" because they are tied to your employment and fund specific social insurance programs. Federal income tax goes into general government revenue.

Medicare tax has no wage cap—you pay 1.45 percent on all your wages, no matter how much you earn. There is an additional 0.9 percent Medicare tax on wages above $200,000 (if single) or $250,000 (if married filing jointly), which was added in 2013. Federal income tax is withheld based on the W-4 form you fill out with your employer, and the amount depends on your filing status, dependents, and other income.

On your pay stub, you will see these three withheld separately. OASDI and Medicare together are sometimes called "FICA taxes" (Federal Insurance Contributions Act). Understanding the difference matters because they fund different programs and have different rules about how much you pay and what benefits you receive.

What happens to OASDI tax money

OASDI tax goes into the Social Security Trust Fund, which is managed by the Social Security Administration. The money is not invested in the stock market or held in individual accounts. Instead, it is used to pay current beneficiaries—retirees, disabled workers, and survivors of deceased workers. If there is money left over at the end of the year, it is held in reserve to cover future payments.

The trust fund has been running a surplus for decades, but that surplus is projected to be depleted sometime in the 2030s if no changes are made to the program. When that happens, incoming OASDI tax revenue will only be enough to pay about 80 percent of scheduled benefits. Congress would need to act—either by raising the payroll tax rate, raising the wage cap, lowering benefits, or raising the full retirement age—to keep the program fully funded.

You do not have control over how your OASDI tax is spent, and you cannot opt out of paying it if you are employed. Self-employed people also cannot opt out, though they can deduct half of their self-employment tax (which includes OASDI) as a business expense on their income tax return.

Self-employed workers and OASDI tax

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 is calculated on your net business income (your revenue minus your business expenses). The rate is 15.3 percent total: 12.4 percent for OASDI and 2.9 percent for Medicare.

You report self-employment tax on Schedule SE when you file your income tax return. The same wage cap applies—in 2024, you only pay OASDI tax on the first $168,600 of net self-employment income. You can deduct half of your self-employment tax as a business expense, which lowers your taxable income.

Self-employed people should set aside money throughout the year to cover their self-employment tax, since it is not withheld automatically like it is for employees. Many self-employed people make quarterly estimated tax payments that include both income tax and self-employment tax.

How to check your OASDI record and future benefits

You can view your Social Security record and see an estimate of your future benefits by creating an account at ssa.gov. The Social Security Administration calls this your "my Social Security" account. You will need to verify your identity, which usually takes a few minutes online.

Your account shows your earnings history year by year, the number of credits you have earned, and an estimate of what your retirement, disability, and survivor benefits would be if you became may be able to access today. The estimate assumes you continue working and earning at your current rate until your full retirement age. You can also see what your benefit would be if you claimed at age 62 (earlier, with a smaller monthly amount) or at age 70 (later, with a larger monthly amount).

It is a good idea to check your record every few years to make sure your earnings are being reported correctly. If you spot an error, you can contact the Social Security Administration to have it corrected. Errors are usually caught and fixed within a few years, but it is better to catch them yourself.

Frequently Asked Questions

Why do I have to pay OASDI tax if I might not get the money back?

OASDI is a social insurance program, not a savings account. You pay into it to protect yourself and your family against the risk of retirement, disability, or death. Even if you die before retirement age, your family may receive survivor benefits. If you become disabled before retirement, you may receive disability benefits. Most people who live to retirement age receive more in benefits than they paid in taxes.

Can I get a refund of OASDI tax I paid in previous years?

No. OASDI tax is not refundable, and you cannot get back money you paid in earlier years. The only exception is if you overpaid OASDI tax in a single year because you worked for multiple employers and your combined earnings exceeded the wage cap. In that case, you can claim a credit on your income tax return.

What if I worked in another country—does that time count toward Social Security?

It depends on the country and whether there is a social security agreement between that country and the United States. Some countries have agreements that allow you to combine work credits from both countries. You would need to contact the Social Security Administration or the other country's social security agency to learn about your work counts.

Does OASDI tax explore to all types of income?

OASDI tax applies to wages and self-employment income. It does not explore to investment income, rental income, or other types of income that are not earned through work. If you have a job and also earn income from investments, you only pay OASDI tax on the wages from your job.

What happens if I do not earn enough credits to get Social Security?

If you do not have 40 credits, you will not receive retirement benefits under your own record. However, you may be able to receive benefits as a spouse, ex-spouse, or survivor based on someone else's record. You can contact the Social Security Administration to find out what you might be may be able to access for.