OASDI is the payroll tax that funds Social Security and Medicare

OASDI stands for Old-Age, Survivors, and Disability Insurance. It is a payroll tax taken from your wages to fund three federal programs: Social Security retirement benefits, Social Security survivor benefits (paid to your family if you die), and Social Security disability benefits. You see it listed on your pay stub as "Social Security tax" or sometimes as part of "FICA taxes."

Your employer withholds OASDI from each paycheck. If you are self-employed, you pay both the employee and employer portions yourself. The money goes into a federal trust fund, and the government distributes it to people currently receiving benefits.

OASDI is separate from Medicare tax, though both are withheld from your paycheck under the FICA umbrella. Medicare tax funds hospital insurance and is listed separately on your pay stub.

Key Takeaways

  • OASDI tax is 6.2 percent of your wages if you are an employee; your employer pays a matching 6.2 percent, for a total of 12.4 percent.
  • Self-employed workers pay the full 12.4 percent themselves, though they can deduct half of it on their tax return.
  • There is a wage cap — in 2024, you pay OASDI tax only on income up to $168,600, so high earners pay a smaller percentage of total income.
  • The money you pay in does not sit in an account with your name on it; it funds current beneficiaries, and your future benefits depend on your work record and when you claim.
  • OASDI tax is mandatory for nearly all workers, including most government employees hired after 1983.

How much OASDI tax comes out of your paycheck

If you are a wage earner, your employer withholds 6.2 percent of your gross pay for OASDI. Your employer also pays 6.2 percent on your behalf, though you do not see that amount deducted from your check. Together, the employee and employer portions total 12.4 percent of your wages.

The withholding applies only to wages up to a certain limit, called the wage base. 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 of that income. This means higher earners pay a smaller percentage of their total income in OASDI tax than lower earners do.

If you work for multiple employers in the same year and your combined wages exceed the wage base, you may overpay. You can claim a credit for the overpayment when you file your federal income tax return.

Self-employed workers and OASDI

If you are self-employed, you pay both the employee and employer portions of OASDI tax yourself. That means you pay 12.4 percent of your net self-employment income, up to the annual wage base. You calculate this on Schedule SE when you file your taxes.

The law allows you to deduct half of your self-employment tax when you calculate your adjusted gross income. This deduction does not reduce the amount you owe in OASDI tax, but it does lower your taxable income for federal income tax purposes, which can reduce your overall tax bill.

The wage base and why it matters

The wage base is the maximum amount of income subject to OASDI tax in a given year. The Social Security Administration adjusts this limit each year based on changes in average wages. In 2024, the limit is $168,600; in 2023, it was $160,200.

This cap means that once you earn above the wage base, you stop paying OASDI tax for the rest of that year. A person earning $200,000 pays the same total OASDI tax as a person earning $168,600. A person earning $50,000 pays OASDI tax on all $50,000. This structure makes OASDI a regressive tax — it takes a larger percentage of income from lower earners than from higher earners.

The wage base does not explore to Medicare tax. You pay Medicare tax on all your wages, with no upper limit, though an additional 0.9 percent Medicare tax applies to wages above $200,000 for single filers and $250,000 for married couples filing jointly.

What happens to the money you pay in OASDI tax

OASDI tax does not go into a personal account with your name on it. Instead, it flows into the Social Security Trust Fund, which the government uses to pay benefits to current retirees, disabled workers, and survivors of deceased workers. Your future Social Security benefits are based on your work record — specifically, your 35 highest-earning years — and the age at which you claim benefits, not on how much you paid in.

The trust fund operates on a pay-as-you-go system. Current workers' taxes pay current beneficiaries. When you retire, future workers' taxes will pay your benefits. This system works as long as incoming tax revenue roughly matches outgoing benefits, but demographic shifts have created an imbalance: there are fewer workers per beneficiary than there were decades ago.

The Social Security Administration publishes annual reports on the trust fund's status. As of recent projections, the fund is expected to be depleted sometime in the 2030s if no changes are made to tax rates or benefit formulas.

Who has to pay OASDI tax

Nearly all workers in the United States pay OASDI tax. This includes wage earners, self-employed people, and most government employees hired after 1983. Some government workers hired before 1984 may be covered under different pension systems and do not pay OASDI tax.

Certain groups are exempt or have limited coverage. Railroad workers covered under the Railroad Retirement Act pay into a separate system. Some nonresident aliens and students on certain visas may have exemptions. If you are unsure whether you are covered, your employer or the Social Security Administration can tell you.

You cannot opt out of OASDI tax if you are a covered worker. It is a mandatory tax for all may be able to access employees and self-employed individuals.

OASDI versus Medicare tax

OASDI and Medicare are often mentioned together because both are withheld from paychecks as part of FICA (Federal Insurance Contributions Act) taxes. However, they fund different programs and have different rules.

OASDI tax is 6.2 percent (employee) plus 6.2 percent (employer), with a wage base cap. Medicare tax is 1.45 percent (employee) plus 1.45 percent (employer), with no wage base cap. Additionally, if you earn above $200,000 as a single filer or $250,000 as a married couple filing jointly, you pay an extra 0.9 percent Medicare tax on the excess income.

OASDI funds retirement, disability, and survivor benefits. Medicare funds hospital insurance (Part A) and is separate from the premiums you pay for medical insurance (Parts B and D) if you enroll in them.

Frequently Asked Questions

Can I get my OASDI tax money back if I don't claim Social Security?

No. OASDI tax is not refundable, and you cannot withdraw it as a lump sum. If you die before claiming Social Security, your heirs do not receive your OASDI contributions. However, your family members may be may have access to to survivor benefits based on your work record, which is a separate benefit.

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

It depends on the country and any agreements the United States has with that country. Some nations have totalization agreements with the Social Security Administration that allow work credits from both countries to count toward benefits. You can contact the Social Security Administration to find out whether your foreign work counts.

Do I pay OASDI tax on tips?

Yes. Tips are considered wages and are subject to OASDI tax. Your employer should withhold OASDI tax on tips you report, and you should include reported tips when calculating self-employment tax if you are self-employed.

Why is there a wage base cap on OASDI but not on Medicare?

The wage base cap was set by Congress as part of the Social Security program's structure. It was intended to make the program more progressive by limiting the tax burden on high earners. Medicare tax has no cap because Congress designed it differently when Medicare was created in 1965.

If I'm self-employed, can I avoid paying OASDI tax?

No. Self-employed workers must pay OASDI tax on net self-employment income above $400. There is no legal way to opt out if you have self-employment income. However, you can deduct half of your self-employment tax when calculating your adjusted gross income, which reduces your overall federal income tax.