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 paycheck and your employer's contribution. The money funds three programs: Social Security retirement benefits, Social Security survivor benefits (paid to your family if you die), and Social Security disability benefits.

You will see OASDI listed on your pay stub as a line item. It is separate from Medicare tax, though both are withheld from your wages. The OASDI rate is 6.2 percent of your gross pay up to a wage cap that changes each year. Your employer pays an equal 6.2 percent on your behalf. If you are self-employed, you pay both portions — 12.4 percent total — though you can deduct half of it when you file taxes.

The wage cap means that once you earn above a certain amount in a year, OASDI tax stops being withheld from your paycheck. In 2024, that cap was $168,600. In 2025, it is $176,100. The cap rises each year based on national wage growth. Medicare tax, by contrast, has no wage cap and continues on all earnings.

Key Takeaways

  • OASDI tax is 6.2 percent of your wages (up to the annual cap) withheld from your paycheck, plus an equal 6.2 percent paid by your employer.
  • The money funds Social Security retirement, survivor benefits, and disability benefits — three separate programs under one tax.
  • Once you earn above the annual wage cap ($176,100 in 2025), OASDI tax stops being withheld for the rest of that year.
  • Self-employed people pay the full 12.4 percent themselves but can deduct half of it as a business expense on their tax return.
  • OASDI is different from Medicare tax, which has no wage cap and funds hospital insurance and medical coverage.

How OASDI tax connects to your future benefits

OASDI tax is not a savings account in your name. The tax you pay today funds benefits for current retirees, survivors, and disabled workers. When you retire or become disabled, future workers' OASDI taxes will fund your benefits. The Social Security Administration tracks your earnings record and uses it to calculate how much you will receive.

You earn work credits based on your annual earnings. In 2025, you earn one credit for every $1,775 in wages, up to four credits per year. You need 40 credits (roughly 10 years of work) to be covered for retirement benefits. Fewer credits are needed for disability or survivor benefits — the requirement depends on your age when you become disabled or die.

Your OASDI contributions are recorded under your Social Security number. You can view your earnings record and benefit estimate by creating an account at ssa.gov. The Social Security Administration sends out statements showing your projected retirement benefit amount based on your current earnings history.

The wage cap and why it matters

The OASDI wage cap is the maximum amount of your annual earnings subject to the tax. In 2025, that cap is $176,100. If you earn $200,000 in a year, you pay OASDI tax only on the first $176,100. The remaining $23,900 is not subject to OASDI tax (though it is still subject to Medicare tax and income tax).

The cap rises each January based on the national average wage index from two years prior. This means the cap typically increases by a small percentage each year. High earners pay the same total OASDI tax as someone earning exactly at the cap, so the tax is regressive — it takes a smaller percentage of income from high earners than from lower earners.

Self-employed workers and employees should both be aware of the cap when planning quarterly taxes or reviewing year-end pay stubs. If you change jobs mid-year, you might pay OASDI tax to multiple employers on the same earnings. If that happens, you can claim a credit for the overpayment when you file your federal income tax return.

OASDI tax for self-employed workers

If you are self-employed, you pay both the employee and employer portions of OASDI tax through self-employment tax. The rate is 12.4 percent on your net self-employment income (up to the annual wage cap). You calculate this on Schedule SE of your tax return.

Self-employed workers can deduct half of their self-employment tax as an adjustment to income on their tax return. This deduction lowers your taxable income but does not reduce the amount of OASDI tax you owe. The deduction is meant to offset the employer portion of the tax, which regular employees do not pay themselves.

You must file Schedule SE if your net self-employment income is $400 or more in a year. Keep records of your business income and expenses to calculate your net earnings accurately. The Social Security Administration uses your self-employment tax payments to build your earnings record, just as it does for regular employees.

How OASDI differs from Medicare tax

OASDI and Medicare are two separate payroll taxes, though both appear on your pay stub. OASDI is 6.2 percent (employee) plus 6.2 percent (employer) and funds Social Security. Medicare is 1.45 percent (employee) plus 1.45 percent (employer) and funds hospital insurance and medical coverage for people 65 and older.

The key difference is the wage cap. OASDI tax stops once you reach the annual cap, but Medicare tax continues on all earnings with no limit. Additionally, high earners pay an extra 0.9 percent Medicare tax on wages above $200,000 (single filers) or $250,000 (married filing jointly). This additional tax has no cap.

Both taxes are withheld automatically from your paycheck if you are an employee. Both are recorded under your Social Security number. But they fund different programs and have different rules about wage limits and benefit calculations.

What happens if you do not pay OASDI tax

OASDI tax is mandatory for most workers in the United States. If you are an employee, your employer is required to withhold it from your paycheck. If you are self-employed, you are required to pay it when you file your tax return. There is no legal way to opt out.

If you do not pay OASDI tax, you do not build work credits toward Social Security benefits. This means you may not have enough credits to receive retirement, disability, or survivor benefits when you need them. Additionally, failing to pay self-employment tax or misreporting income to avoid the tax is tax evasion, which carries penalties and potential criminal charges.

Some workers — including certain government employees hired before specific dates, some religious groups with approved exemptions, and nonresident aliens in certain visa categories — may be exempt from OASDI tax. These exemptions are narrow and require specific documentation. If you think you might be exempt, contact the Social Security Administration or a tax professional to verify.

Frequently Asked Questions

What is the difference between OASDI and Social Security?

OASDI is the payroll tax. Social Security is the program that the tax funds. When you pay OASDI tax, that money goes into the Social Security trust funds, which then pay out retirement, disability, and survivor benefits. The terms are sometimes used interchangeably, but OASDI specifically refers to the tax itself.

Can I get my OASDI tax money back if I do not use Social Security?

No. OASDI tax is not a personal savings account. The money you pay funds current beneficiaries. You cannot withdraw it or pass it to your heirs if you do not claim benefits. However, if you have a spouse or children, they may be able to receive survivor benefits based on your earnings record if you die.

Why does the OASDI wage cap change every year?

The cap is tied to the national average wage index, which measures how much workers earn on average across the country. When average wages rise, the cap rises too. This keeps the tax system roughly proportional to wage growth and ensures that Social Security can fund benefits as the cost of living increases.

If I work two jobs, do I pay OASDI tax twice?

Yes, you pay OASDI tax to each employer on your wages from that job. If your combined earnings exceed the annual wage cap, you will overpay OASDI tax. When you file your federal income tax return, you can claim a credit for the excess OASDI tax withheld, and the IRS will refund it to you.

Do I pay OASDI tax on tips and bonuses?

Yes. OASDI tax applies to all wages, including tips, bonuses, and other compensation. Your employer should include these amounts when calculating OASDI tax withholding. Report all tips to your employer so they can withhold the correct amount.