OASDI is the Social Security and Medicare tax taken from your paycheck

OASDI stands for Old-Age, Survivors, and Disability Insurance. It is the payroll tax that funds Social Security and Medicare Part A (hospital insurance). When you see "OASDI" or "Social Security" on your pay stub, that line shows money being withheld from your wages to pay for these programs.

The OASDI tax rate is 15.3 percent of your gross wages, split into two parts: 12.4 percent for Social Security and 2.9 percent for Medicare. If you are an employee, your employer withholds half (7.65 percent) from your paycheck, and your employer pays the other half directly to the government. If you are self-employed, you pay both halves yourself, though you can deduct half of what you pay as a business expense on your tax return.

The Social Security portion (12.4 percent) only applies to wages up to a certain limit, which changes each year. In 2024, that limit is $168,600 — meaning once you earn that much in a year, no more Social Security tax is withheld from your remaining paychecks. Medicare tax (2.9 percent) has no wage limit and applies to all your earnings. High earners also pay an additional 0.9 percent Medicare tax on wages above $200,000 (single) or $250,000 (married filing jointly).

Key Takeaways

  • OASDI tax funds Social Security retirement benefits, survivor benefits, disability benefits, and Medicare hospital insurance.
  • The total OASDI rate is 15.3 percent: 12.4 percent for Social Security and 2.9 percent for Medicare, split between you and your employer.
  • Social Security tax stops once you reach the annual wage limit ($168,600 in 2024), but Medicare tax continues on all earnings.
  • Self-employed workers pay both the employee and employer portions but can deduct half of the total on their tax return.

How Social Security tax funds retirement and disability

The 12.4 percent Social Security portion of OASDI tax pays for four types of benefits. The largest is retirement benefits — money paid monthly to workers age 62 or older who have paid into the system long enough. The second is survivor benefits, paid to the spouse and children of a worker who dies. The third is disability benefits, paid to workers under full retirement age who cannot work due to a medical condition expected to last at least 12 months or result in death.

The fourth category is a smaller program called Supplemental Security Income (SSI), which provides cash to people age 65 or older, blind people, or people with disabilities who have very low income and few assets. SSI is funded partly from general tax revenue and partly from Social Security taxes.

To receive Social Security retirement or disability benefits, you must have earned enough work credits — typically 40 credits over your lifetime, with at least 20 earned in the 10 years before you turn 62 or become disabled. Each year you work and pay OASDI tax, you earn up to four credits. The amount of your monthly benefit depends on your earnings history and the age at which you claim.

How Medicare tax funds hospital insurance

The 2.9 percent Medicare portion of OASDI tax funds Medicare Part A, which covers hospital stays, skilled nursing facility care, hospice, and some home health services. Unlike Social Security, Medicare Part A is available to nearly all people age 65 or older, regardless of income, as long as they or their spouse paid Medicare tax for at least 10 years (40 quarters).

Medicare Part A is the only part of Medicare funded by payroll tax. Parts B (doctor visits and outpatient care), D (prescription drugs), and supplemental coverage are funded through premiums you pay directly, general tax revenue, or both. When you turn 65, you become may be able to access for Medicare Part A automatically if you have worked long enough, even if you have not yet claimed Social Security retirement benefits.

Why the wage limit exists for Social Security but not Medicare

Social Security was designed as an insurance program where benefits are tied to your earnings history. The annual wage limit (called the "contribution and benefit base") means that higher earners pay a smaller percentage of their total income into the system. In 2024, someone earning $168,600 pays the same total Social Security tax as someone earning $500,000.

Medicare, by contrast, is structured more like a universal health insurance program for older adults. Because Medicare benefits are not directly tied to how much you earned — a high earner and a low earner receive the same hospital coverage — there is no wage limit on Medicare tax. This means high earners pay Medicare tax on all their wages, while their Social Security tax stops at the annual limit.

Self-employed workers and OASDI tax

If you are self-employed, you pay both the employee and employer portions of OASDI tax, for a total of 15.3 percent on your net self-employment income. You calculate this on Schedule SE (Self-Employment Tax) when you file your annual tax return. The Social Security portion still stops at the annual wage limit, but Medicare tax applies to all your net earnings.

The tax code allows you to deduct half of your self-employment tax as a business expense on your Form 1040, which reduces your taxable income. This deduction roughly mirrors the fact that employees do not pay income tax on the employer portion of OASDI tax withheld from their paychecks. Even with this deduction, self-employed workers typically pay more in total OASDI tax than employees earning the same income, because they pay both halves.

How OASDI tax appears on your pay stub

On a W-2 employee pay stub, you will see OASDI tax listed separately from federal income tax withholding. It may be labeled "Social Security Tax," "OASDI," "FICA," or "6.2% Social Security" and "1.45% Medicare." The amounts withheld are shown in the deductions section, and your employer's matching contribution is not shown on your stub but is reported to the government separately.

Your W-2 form, which you receive by January 31 each year, shows the total wages you earned and the total OASDI tax withheld. Box 4 shows Social Security tax withheld, and Box 6 shows Medicare tax withheld. These amounts are used to calculate your work credits and future benefit amounts if you ever claim Social Security or Medicare.

What happens if you work in multiple jobs or states

If you work more than one job in a single year, you may pay Social Security tax on wages above the annual limit. This happens because each employer withholds Social Security tax based only on what they pay you, not on your total income from all jobs. When you file your tax return, you can claim a credit for the excess Social Security tax paid, and the IRS will refund it to you.

Medicare tax does not have this problem because there is no wage limit. If you work in multiple states, OASDI tax is withheld the same way regardless of location — your employer withholds based on federal rates, not state rates, because OASDI is a federal program.

Frequently Asked Questions

Can I opt out of paying OASDI tax?

No. OASDI tax is mandatory for all employees and self-employed workers. The only exceptions are certain religious groups that have been granted exemptions by the IRS, and some government employees hired before 1984 who are covered by alternative pension systems.

What if I paid too much Social Security tax?

If you worked multiple jobs and your total Social Security tax exceeded the annual limit, you can claim a credit on your tax return. The IRS will refund the overpayment. You claim this on Form 1040 using the worksheet in the instructions.

Does OASDI tax count toward my income tax?

No. OASDI tax and federal income tax withholding are separate. OASDI tax funds Social Security and Medicare; income tax funds general government operations. Both are withheld from your paycheck, but they go to different programs.

Will Social Security still be around when I retire?

Social Security's trust fund is projected to be depleted around 2033 if no changes are made, but the program will not disappear. Even after depletion, incoming OASDI tax revenue will cover roughly 77 percent of scheduled benefits. Congress would need to act to address the shortfall through tax increases, benefit adjustments, or both.

How do I know how much Social Security I will receive?

You can create a free account at ssa.gov to view your earnings record and see an estimate of your future benefits. The Social Security Administration also mails benefit statements to people not yet receiving benefits. Your benefit amount depends on your earnings history and the age at which you claim.