Why Am I Paying OASDI Tax on My Paycheck?

Old-Age, Survivors, and Disability Insurance (OASDI) tax, commonly known as Social Security tax, is a fundamental component of the U.S. social safety net. This payroll deduction contributes to programs designed to provide financial security for millions of Americans. Understanding the purpose and mechanics of this tax can clarify why it appears on your paycheck and how it functions to support a broad range of benefits.

Understanding the Social Security and Medicare Programs

The OASDI tax primarily funds two federal initiatives: Social Security and Medicare. Social Security provides income protection for retirees, individuals with disabilities, and families of deceased workers. It offers Old-Age benefits for those who have reached retirement age, Survivors benefits for eligible family members after a worker’s death, and Disability benefits for those unable to work due to a significant medical condition.

Medicare is the federal health insurance program for individuals generally aged 65 or older, and some younger people with certain disabilities. It helps cover hospital stays, skilled nursing facility care, hospice care, and some home health services under Part A, known as Hospital Insurance.

How Your OASDI Tax is Determined

The OASDI tax is part of the Federal Insurance Contributions Act (FICA) taxes, which are automatically withheld from employee paychecks. For 2025, the Social Security tax rate is 6.2% for employees, and employers also pay an equal 6.2%, totaling 12.4% of wages. The Medicare tax rate is 1.45% for both employees and employers, resulting in a combined 2.9%. These rates are applied to your gross wages.

The Social Security tax has a wage base limit, meaning only earnings up to a certain amount are subject to this tax annually. For 2025, this limit is $176,100, so any income earned above this threshold is not subject to the Social Security portion of the tax. Conversely, there is no wage limit for Medicare tax, meaning all covered wages are subject to the 1.45% Medicare tax. An additional Medicare tax of 0.9% applies to wages exceeding $200,000 for single filers, with different thresholds for other filing statuses, which employers are required to withhold.

Self-employed individuals pay both the employee and employer portions of these taxes through the Self-Employment Tax. This combined rate is 15.3% (12.4% for Social Security and 2.9% for Medicare) on net earnings from self-employment. However, self-employed individuals can deduct one-half of their self-employment taxes in calculating their adjusted gross income for income tax purposes.

Your Contributions and Future Benefits

The OASDI taxes you pay directly contribute to your eligibility for future Social Security and Medicare benefits. This eligibility is determined by “work credits,” which are earned throughout your working life by paying Social Security taxes on your earnings. You can earn up to four work credits each year. For 2025, earning $1,810 in income grants one credit, with $7,240 earning the maximum four credits.

For instance, most individuals born in 1929 or later need 40 work credits, equivalent to about 10 years of covered employment, to qualify for Social Security retirement benefits. Eligibility for disability and survivors benefits also depends on work credits, though the requirements vary based on age and the type of benefit.

Medicare eligibility is also tied to these work credits. To qualify for premium-free Medicare Part A, individuals typically need 40 work credits, which also corresponds to approximately 10 years of paying FICA taxes. If fewer credits are earned, a monthly premium may be required for Part A coverage.