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 deducted from your paycheck, matched by your employer, and sent to the federal government. The money funds three programs: Social Security retirement benefits, Social Security disability benefits (SSDI), and Medicare Part A (hospital insurance).

You will see OASDI listed on your pay stub as a line item, usually labeled "Social Security" or "OASDI." The current rate is 6.2% of your gross wages, up to a wage cap that changes each year. Your employer pays an equal 6.2%. If you are self-employed, you pay both portions — 12.4% total — on your net business income.

The tax has been collected since 1935. It is mandatory for nearly all workers in the United States, with only a few exceptions (some government employees hired before 1984, certain religious groups, and some foreign nationals).

Key Takeaways

  • OASDI is a 6.2% payroll tax on wages, matched by your employer, that funds Social Security retirement, disability, and Medicare Part A.
  • The tax applies only to wages below an annual cap, which was $168,600 in 2024 but changes yearly based on wage growth.
  • Self-employed workers pay the full 12.4% (both employee and employer portions) on their net business income.
  • The money you pay in does not sit in a personal account; it goes into a trust fund that pays current beneficiaries, and your future benefits depend on your work history and age.

How the wage cap works

OASDI tax is not collected on all of your income. The government sets an annual wage cap — the maximum amount of earnings subject to the tax. In 2024, that cap was $168,600. Any wages above that amount are not taxed for OASDI purposes.

The cap rises each year based on national wage growth. This means a high-earning worker pays OASDI tax only on the first $168,600 (or whatever the current year's cap is), and nothing on income above that. A worker earning $50,000 pays on all $50,000. A worker earning $200,000 pays on only $168,600 of it.

Medicare (Part A) has no wage cap — it is collected on all wages at a rate of 1.45%, plus an additional 0.9% Medicare tax on wages over $200,000 (single) or $250,000 (married filing jointly). But that additional tax is separate from OASDI.

Where OASDI money goes

OASDI taxes flow into two trust funds: the Old-Age and Survivors Insurance (OASI) Trust Fund and the Disability Insurance (DI) Trust Fund. These are separate accounts, though they are sometimes managed together.

The OASI fund pays retirement benefits to workers age 62 and older, and survivor benefits to the spouses and children of deceased workers. The DI fund pays benefits to workers under 65 who have a severe disability, and to their family members. Medicare Part A (hospital insurance) is funded separately but is often grouped with OASDI for payroll tax purposes.

The money does not accumulate in your name. It is a pay-as-you-go system: current workers' taxes pay current retirees' and disabled workers' benefits. Your future benefit amount depends on your lifetime earnings record and the age at which you claim, not on how much you paid in.

Self-employment and OASDI

If you are self-employed, you pay OASDI tax through self-employment tax on your net business income. The rate is 12.4% for Social Security (the combined employee and employer share) plus 2.9% for Medicare, for a total of 15.3%.

You calculate self-employment tax on Schedule SE (Form 1040) when you file your income tax return. You can deduct half of your self-employment tax as a business expense on your tax return, which reduces your taxable income slightly. The other half is paid to the government along with your income tax.

The wage cap still applies. Self-employed income above the annual cap is not subject to the 12.4% Social Security portion, though it remains subject to the 2.9% Medicare tax (plus the additional 0.9% Medicare tax if your income is high enough).

How OASDI affects your future benefits

The amount you pay in OASDI tax over your working years determines your future Social Security benefit amount. The Social Security Administration tracks your earnings record and uses your 35 highest-earning years to calculate your benefit.

You must have worked and paid OASDI tax for at least 10 years (40 quarters) to be may be able to access for retirement benefits. For disability benefits, the requirement is shorter — usually 5 to 10 years of recent work, depending on your age. Survivor benefits for your family members also depend on your work history.

Your benefit amount is not a direct return of what you paid. It is calculated using a formula that replaces a percentage of your average earnings. Workers with lower lifetime earnings receive a higher replacement rate than higher earners, so the system has a progressive structure.

OASDI tax and your pay stub

On your pay stub, you will see OASDI deducted as a line item, usually labeled "Social Security" or "OASDI." The amount shown is 6.2% of your gross wages (up to the annual cap). Your employer's matching contribution does not appear on your pay stub but is a real cost to them.

If you work for multiple employers in the same year, each one withholds 6.2% up to the wage cap. If your combined wages exceed the cap, you may have overpaid OASDI tax. You can claim a refund of the overpayment when you file your income tax return — the IRS will credit it against your income tax liability or refund it to you.

Some workers, such as certain government employees, railroad workers, or clergy, may have different OASDI arrangements or exemptions. If you fall into one of these categories, your pay stub may show different deductions.

Frequently Asked Questions

What is the difference between OASDI and Medicare?

OASDI is the payroll tax that funds Social Security (retirement and disability) and Medicare Part A (hospital insurance). Medicare Part B (doctor visits) and Part D (prescription drugs) are funded differently and have separate premiums. When people say "OASDI tax," they usually mean the 6.2% Social Security portion, though Medicare Part A (1.45%) is collected on the same paycheck.

Can I opt out of paying OASDI tax?

No. OASDI tax is mandatory for nearly all workers in the United States. A few narrow exceptions exist — some government employees hired before 1984, members of certain religious groups, and some foreign nationals — but most workers cannot opt out. If you are self-employed, you must pay self-employment tax unless you fall into an exception category.

What happens to OASDI if I never claim Social Security?

The money you paid in stays in the trust fund and is used to pay other beneficiaries. You do not get a refund of your contributions if you do not claim benefits. However, if you delay claiming past your full retirement age, your benefit amount increases by about 8% per year until age 70, so waiting can result in a higher lifetime benefit.

Do I pay OASDI tax on tips or bonuses?

Yes. Tips and bonuses are considered wages and are subject to OASDI tax at the same 6.2% rate as regular pay. Your employer should report tips to the IRS and withhold OASDI tax on them. If you receive cash tips that your employer does not report, you are still required to report them on your tax return and pay OASDI tax on them.

Is OASDI tax deductible on my income tax return?

No. OASDI tax is not deductible from your income tax. However, if you are self-employed, you can deduct half of your self-employment tax as a business expense, which lowers your taxable income. Employees cannot deduct their OASDI withholding.