Social Security Tax (OASDI)

Social Security tax is the dedicated payroll tax that funds Social Security. Its formal name is the OASDI tax (Old-Age, Survivors, and Disability Insurance) which is a more honest description of what it buys than "retirement tax," since the same tax funds disability and survivor benefits. For an employee it is levied at 6.2% of wages, with the employer paying a matching 6.2%, for a combined 12.4%. It applies only to earnings up to an annual ceiling that Congress indexes each year, called the contribution and benefit base or taxable maximum, $184,500 for 2026. Two naming points cause constant confusion, and both are worth getting straight. First, Social Security tax is one of the two taxes that make up FICA, named for the Federal Insurance Contributions Act; the other is Medicare tax. A paystub showing "FICA" is usually showing both together, which is why the combined employee rate is often quoted as 7.65% (6.2% plus 1.45%). Second, and more consequentially: "Social Security tax" and "tax on Social Security benefits" are entirely different things. This page is about the tax withheld from wages while you work. Whether your benefits are later subject to income tax is a separate question governed by a measure called provisional income.

The ceiling is the defining feature. Medicare tax applies to every dollar of wages with no cap. Social Security tax stops at the taxable maximum, so someone earning several times that figure pays the same total Social Security tax as someone right at the cap, and their effective rate falls as income rises. That is a deliberate design choice rather than an oversight: the cap on the tax is paired with a cap on the benefit. Earnings above the maximum are neither taxed nor credited toward your benefit, which is why the highest earners cannot buy a larger Social Security check by earning more. The employer half is real money, and economists dispute who bears it. You see 6.2% withheld and your employer remits another 6.2%. The standard economic view is that most of the employer share is ultimately borne by workers in the form of lower wages, which is why the self-employed rate is the full 12.4% rather than an unfair penalty: it reflects that a self-employed person occupies both roles. Self-employment works differently in form, not substance. Instead of FICA withholding, the self-employed pay self-employment tax: 12.4% for Social Security plus 2.9% for Medicare, 15.3% combined, applied to 92.35% of net self-employment earnings. Half of the total is deductible in computing adjusted gross income, which approximates the deduction an employer gets for its share. The same wage ceiling applies to the Social Security portion. Medicare's surtax has no counterpart here. An Additional Medicare Tax of 0.9% applies to wages and self-employment income above $200,000 for single filers, $250,000 married filing jointly, and $125,000 married filing separately: thresholds set by statute and never indexed for inflation. There is no equivalent additional Social Security tax; above the wage base, the Social Security portion simply stops. Two practical wrinkles worth knowing. If you work for more than one employer in a year, each withholds independently and neither knows about the other, so your combined withholding can exceed the annual maximum — the excess is recovered as a credit when you file. And because the tax is the mechanism that earns you coverage, unreported cash wages are not a windfall: work that goes untaxed also goes uncredited, and 40 credits are generally needed to qualify for retirement benefits at all.

For an employee the mechanism is automatic: each pay period the employer withholds 6.2% of that period's wages, adds its own matching 6.2%, and remits both. Withholding continues until your cumulative wages for the year reach the taxable maximum, then stops until January. A hypothetical example. Nadia earns $220,000 in salary in 2026, above the taxable maximum. Her Social Security tax is 6.2% of the maximum rather than of her full salary, so once her year-to-date wages pass that ceiling, some time in the autumn, the 6.2% line disappears from her paystub and her take-home pay rises for the rest of the year. Her Medicare tax does not stop: 1.45% continues on every dollar, and because she is over $200,000 as a single filer, an extra 0.9% Additional Medicare Tax applies to the excess. Her employer matched her 6.2% up to the cap and matches her 1.45% on everything, but does not match the 0.9% surtax. Meanwhile only the earnings up to the ceiling counted toward her future benefit. Figures are illustrative; the actual ceiling is published by SSA each autumn. For a self-employed person the same result is reached on the tax return rather than the paystub: net earnings are computed, 92.35% of them are subject to self-employment tax, the Social Security portion applies up to the same ceiling, and half the total comes back as a deduction.

What it buys

• Retirement, disability, and survivor coverage for the worker and, in many cases, a spouse, children, and survivors — insurance that is difficult to replicate privately.
• Benefits that are inflation-adjusted and last for life, funded by a tax you largely cannot opt out of and therefore cannot forget to fund.
• A progressive benefit formula, so the tax replaces a larger share of income for lower earners than for higher ones.

The honest criticisms

• Because of the wage ceiling, the tax is regressive with respect to income: the effective rate falls as earnings rise above the cap.
• It applies to the first dollar of wages, with no standard-deduction equivalent, so it is the largest federal tax many lower-income workers pay.
• It funds a program with a documented long-range financing shortfall, so the relationship between what is paid in and what will be paid out is uncertain for younger workers.
• The employer half is invisible on a paystub, which understates the true cost of employing someone and the true wedge between labour cost and take-home pay.