What OASDI Tax Is and How It Works

OASDI is the payroll tax that funds Social Security and Medicare Part A

OASDI stands for Old-Age, Survivors, and Disability Insurance. It is a payroll tax taken from your wages to fund two programs: Social Security retirement and disability benefits, and Medicare Part A (hospital insurance). You see it on your pay stub as a line item, usually labeled "Social Security" or "OASDI," separate from federal income tax withholding.

The tax is split between you and your employer. You pay 6.2 percent of your wages up to a yearly earnings cap, and your employer pays an equal 6.2 percent. Self-employed people pay both portions — 12.4 percent total — on their net business income. On top of that, you also pay 1.45 percent for Medicare Part A (hospital insurance), and your employer pays 1.45 percent. Self-employed people pay 2.9 percent total for Medicare.

The earnings cap for Social Security tax changes each year based on wage growth. In 2024, you pay Social Security tax on earnings up to $168,600. Once your wages exceed that amount in a calendar year, no more Social Security tax is withheld from your paychecks. Medicare tax, by contrast, has no earnings cap — you pay 1.45 percent on all wages no matter how much you earn. High earners also pay an additional 0.9 percent Medicare tax on wages above $200,000 (single filers) or $250,000 (married filing jointly).

Key Takeaways

OASDI tax funds Social Security retirement and disability benefits plus Medicare Part A hospital insurance, and is withheld from your paycheck at 6.2 percent for Social Security and 1.45 percent for Medicare.
The Social Security portion stops once you reach the yearly earnings cap (which varies by year), but Medicare tax continues on all wages with no cap.
Your employer pays an equal share of both taxes, and self-employed people pay both the employee and employer portions themselves.
The money you pay into OASDI now does not sit in a personal account — it goes directly to current beneficiaries, and future benefits depend on your work record and age when you claim.

How OASDI tax connects to your future benefits

OASDI tax is not a savings account. The money you pay in does not accumulate in a personal fund with your name on it. Instead, the tax revenue goes into two trust funds — the Social Security trust fund and the Medicare Hospital Insurance trust fund — which pay out benefits to current retirees, disabled workers, and their families, as well as to people receiving Medicare Part A.

Your future Social Security benefits are based on your work record: how many years you worked and how much you earned in those years. The Social Security Administration tracks your OASDI contributions and uses them to calculate your benefit amount when you reach retirement age or become disabled. You need 40 work credits (roughly 10 years of work) to be covered for retirement benefits. Survivors benefits for your family members depend on your work record as well.

Medicare Part A coverage is also tied to your work history. If you have paid OASDI tax for at least 10 years, you are covered for hospital insurance when you turn 65, even if you have not yet claimed Social Security retirement benefits. The amount you paid in OASDI tax does not determine your Medicare Part A benefit amount — coverage is the same for everyone — but your work record determines whether you are covered at all.

The difference between OASDI tax and federal income tax

OASDI tax and federal income tax are two separate withholdings on your paycheck. Federal income tax is based on your tax bracket and filing status, and the amount withheld depends on the W-4 form you complete with your employer. OASDI tax, by contrast, is a flat rate: 6.2 percent for Social Security (up to the earnings cap) and 1.45 percent for Medicare, with no variation based on your income level or personal situation.

Federal income tax goes to the U.S. Treasury and funds general government operations. OASDI tax goes specifically to the Social Security and Medicare trust funds. You can see both on your pay stub as separate line items. If you overpay federal income tax during the year, you get a refund when you file your tax return. OASDI tax does not work that way — there is no refund mechanism, though you can request a corrected Social Security statement if you believe your earnings record is wrong.

Self-employment and OASDI tax

If you are self-employed, you pay OASDI tax through the self-employment tax on your federal income tax return (Form 1040, Schedule SE). You pay both the employee and employer portions: 12.4 percent for Social Security (on net earnings up to the yearly cap) and 2.9 percent for Medicare (on all net earnings). The total self-employment tax rate is 15.3 percent.

You calculate self-employment tax on your net business income — your gross income minus business expenses. The Social Security Administration uses this income to build your work record and calculate future benefits, just as it does for employees. You can deduct half of your self-employment tax as a business expense on your tax return, which reduces your taxable income.

If you have both W-2 wages and self-employment income in the same year, you still only pay Social Security tax up to the yearly earnings cap combined. For example, if you earned $150,000 in W-2 wages and $30,000 in self-employment income in 2024, you would pay Social Security tax on the first $168,600 of combined income, not on all $180,000. You calculate this on Schedule SE when you file your return.

What happens to OASDI tax revenue

OASDI tax revenue flows into two trust funds managed by the Social Security Administration: the Old-Age and Survivors Insurance (OASI) Trust Fund and the Disability Insurance (DI) Trust Fund. These funds pay out benefits to retirees, disabled workers, and their family members. A separate Hospital Insurance Trust Fund, funded by the Medicare portion of OASDI tax, pays for Medicare Part A services.

The trust funds operate on a pay-as-you-go basis. Current tax revenue pays current beneficiaries. When tax revenue exceeds benefit payments in a given year, the surplus goes into the trust fund reserves. When benefit payments exceed tax revenue, the reserves are drawn down. The Social Security Administration publishes annual reports on the status of these trust funds, including projections about when reserves may be depleted if no changes are made to tax rates or benefit formulas.

OASDI tax for non-citizens and immigrants

OASDI tax is withheld from the wages of all workers in the United States, regardless of immigration status, as long as they have a valid Social Security number or Individual Taxpayer Identification Number (ITIN). Undocumented workers who use an ITIN to work and pay taxes contribute to OASDI but may not be able to claim Social Security benefits later, depending on their immigration status and the rules in effect at the time they reach retirement age.

Lawful permanent residents and other authorized workers pay OASDI tax just like U.S. citizens and can build a work record toward Social Security and Medicare benefits. Temporary visa holders (such as H-1B workers) also pay OASDI tax and can earn work credits. The rules for non-citizens claiming benefits are complex and depend on the visa category, length of U.S. residence, and bilateral agreements between the United States and other countries.

Frequently Asked Questions

Can I opt out of paying OASDI tax?

No. OASDI tax is mandatory for all workers in the United States. The only exception is certain religious groups that have been granted a waiver by the Internal Revenue Service, but this is rare and requires specific conditions. If you are employed or self-employed, you must pay OASDI tax.

What is the earnings cap for OASDI tax in 2024?

The Social Security portion of OASDI tax applies to earnings up to $168,600 in 2024. This cap increases each year based on average wage growth. Medicare tax has no earnings cap and applies to all wages. High earners also pay an additional 0.9 percent Medicare tax on wages above $200,000 (single) or $250,000 (married filing jointly).

Do I get a refund if I overpay OASDI tax?

You may get a refund if you worked for multiple employers in the same year and your combined wages exceeded the Social Security earnings cap. Each employer withholds Social Security tax independently, so you could pay more than the yearly maximum. You claim the overpayment as a credit on your tax return (Form 1040) when you file. Medicare tax overpayments are also refunded this way.

Does OASDI tax count toward my income tax filing requirement?

OASDI tax and federal income tax are separate. You may owe federal income tax even if your only income is from OASDI-taxable wages, and you may owe OASDI tax even if you do not owe federal income tax. Whether you must file a tax return depends on your gross income and filing status, not on OASDI tax alone.

What happens to my OASDI contributions if I die before retirement?

Your family members may be able to claim survivor benefits based on your work record, even if you die before reaching retirement age. Your spouse, children, and parents (in some cases) may be covered. The amount depends on your earnings record and their relationship to you. You do not get a refund of your OASDI contributions, but your family's benefits come from the trust fund.

This guide is for general information only and is not medical, financial, legal, or other professional advice. For decisions specific to your situation, consult a qualified professional. See our Editorial Policy.