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

OASDI stands for Old-Age, Survivors, and Disability Insurance. It is the Social Security tax line item you see on your pay stub. The amount withheld from your paycheck funds two separate programs: Social Security retirement and disability benefits, and Medicare hospital insurance (Part A).

Your employer withholds OASDI tax automatically. The rate is 6.2% of your gross wages up to a yearly earnings cap. If you are self-employed, you pay both the employee and employer portions — 12.4% total — though you can deduct half of it on your tax return.

The money does not sit in an account with your name on it. It goes into a federal trust fund that pays current beneficiaries. Your future benefits are based on your earnings record and age when you claim, not on how much tax you paid in.

Key Takeaways

  • OASDI tax is 6.2% of your wages, withheld by your employer, and funds Social Security retirement, disability, and Medicare Part A.
  • The tax applies only to earnings up to a cap that changes each year; earnings above that cap are not taxed for OASDI.
  • Self-employed workers pay 12.4% OASDI tax (both employee and employer shares) on net business income.
  • The money you pay in does not go into a personal account; it funds benefits for current retirees and disabled workers.

How much OASDI tax comes out of your paycheck

The OASDI tax rate is fixed at 6.2% of your gross wages. Your employer calculates it on each paycheck and sends it to the Internal Revenue Service along with their matching 6.2% contribution.

The tax only applies to wages below an annual earnings cap. That cap changes each year. For 2024, the cap is $168,600 in annual earnings. If you earn $200,000 in a year, OASDI tax is withheld only on the first $168,600. Wages above the cap are not subject to OASDI tax, though they are still subject to Medicare tax (1.45%).

If you work for more than one employer in the same year and your combined wages exceed the cap, you may have overpaid OASDI tax. You can claim a refund of the overpayment when you file your federal tax return.

The difference between OASDI and Medicare tax

OASDI and Medicare are two separate taxes on your paycheck, though they are often grouped together. OASDI is 6.2% and funds Social Security. Medicare tax is 1.45% and funds hospital insurance (Part A).

Medicare tax has no earnings cap — it applies to all your wages, no matter how much you earn. If you earn over $200,000 as a single filer (or $250,000 married filing jointly), an additional 0.9% Medicare tax is withheld on the excess.

OASDI and Medicare are both mandatory payroll deductions. Together they are sometimes called FICA taxes (Federal Insurance Contributions Act). Your pay stub may show them separately or combined, depending on your employer's format.

Who pays OASDI tax and who does not

Most workers in the United States pay OASDI tax. Your employer withholds it from your wages automatically. Federal employees hired before 1984 do not pay OASDI tax; they pay into a separate Civil Service Retirement System instead.

Some state and local government employees do not pay OASDI tax if they are covered by a pension plan instead. Railroad workers pay into the Railroad Retirement Tax Act system rather than OASDI. If you fall into one of these categories, your pay stub will show a different tax line.

Self-employed people pay OASDI tax on their net business income. You calculate it on Schedule SE (Self-Employment Tax) when you file your annual tax return. The rate is 12.4% because you pay both the employee and employer portions.

What OASDI tax funds

OASDI tax funds two programs. The first is Social Security retirement benefits, paid to workers age 62 and older who have earned enough work credits. The second is Social Security Disability Insurance (SSDI), paid to workers under full retirement age who have a medical condition expected to last at least 12 months or result in death.

OASDI tax also funds survivor benefits. If a worker dies, their spouse and children may receive monthly payments based on the worker's earnings record. These are paid from the same OASDI trust fund.

The Medicare Part A portion of OASDI tax funds hospital insurance — inpatient hospital care, skilled nursing facility care, and hospice. It does not fund Medicare Parts B, C, or D, which are funded separately through premiums and general tax revenue.

How OASDI tax affects your future benefits

The amount of OASDI tax you pay does not directly determine your benefit amount. Instead, Social Security looks at your 35 highest-earning years and calculates a monthly benefit based on your average earnings. The more you earned during your working years, the higher your benefit will be.

To receive Social Security retirement benefits, you must have earned at least 40 work credits. One credit is earned for each $1,640 in wages in 2024 (the amount changes yearly). Most people earn four credits per year, so 40 credits typically takes 10 years of work.

If you stop working before age 62, your earnings record still counts toward your future benefit. If you work past full retirement age, your benefit increases by about 8% per year until age 70. Working longer can raise your benefit by replacing lower-earning years with higher ones.

What happens if you overpay OASDI tax

Overpayment happens when you work for multiple employers in the same year and your combined wages exceed the annual earnings cap. Each employer withholds OASDI tax up to the cap independently, so you may pay more than the law allows.

For example, if you earn $100,000 at one job and $80,000 at another in 2024, you will overpay. The first employer withholds OASDI tax on all $100,000. The second employer withholds OASDI tax on all $80,000. But the law says only the first $168,600 of your combined earnings should be taxed.

You claim the overpayment as a credit on your federal tax return (Form 1040). The IRS will refund the excess OASDI tax you paid. You do not need to contact Social Security or the IRS separately — the refund is handled when you file.

Frequently Asked Questions

Why is OASDI tax called FICA on my pay stub?

FICA stands for Federal Insurance Contributions Act, the law that created the payroll tax system. OASDI and Medicare taxes are both FICA taxes. Your employer may use either term, and they mean the same thing.

Can I opt out of paying OASDI tax?

No. OASDI tax is mandatory for all covered workers. The only exceptions are certain federal employees hired before 1984, some state and local government workers with pension plans, and railroad workers. If you fall into one of these categories, your employer will tell you.

Does OASDI tax go into a personal account with my name on it?

No. OASDI tax goes into a federal trust fund that pays current beneficiaries. Your future benefit is based on your earnings record and the age you claim, not on how much tax you paid. The system is pay-as-you-go, not a savings account.

What if I worked outside the United States — does that count toward OASDI?

Work outside the U.S. generally does not count toward Social Security unless you paid OASDI tax on those wages or have a totalization agreement with that country. Some countries have agreements with the U.S. that allow work credits to be combined. Contact the Social Security Administration if you worked abroad.

Will the OASDI earnings cap increase next year?

Yes. The cap increases each year based on average wage growth in the economy. The Social Security Administration announces the new cap in October for the following year. You can check the Social Security website for the current and upcoming year's cap.