If you’ve ever looked closely at your paycheck, you may have noticed a deduction labeled OASDI Tax and wondered what it means. OASDI stands for Old-Age, Survivors, and Disability Insurance, and it’s a key component of the Social Security program in the United States. This tax helps fund benefits for retirees, individuals with disabilities, and survivors of deceased workers.
Too Long; Didn’t Read
- OASDI Tax = Social Security Tax – It funds retirement, disability, and survivor benefits
- Tax Rate: 6.2% for employees & employers (12.4% for self-employed)
- Wage Limit: Only applies to income up to $176,100 (2025)
- Mandatory for most workers, with a few exceptions
- Helps ensure financial support in retirement, disability, or after a worker’s death
How Does OASDI Tax Work?
OASDI tax is a mandatory payroll tax collected under the Federal Insurance Contributions Act (FICA). Both employees and employers contribute to this tax, and it plays a critical role in funding Social Security benefits.
OASDI Tax Rates
As of 2025, the OASDI tax rate is:
- 6.2% for employees
- 6.2% for employers
- Self-employed individuals pay both portions (12.4%) under the Self-Employment Contributions Act (SECA)
This tax applies to wages up to a certain limit, known as the Social Security wage base, which is $176,100 for 2025. Any earnings above this amount are not subject to OASDI tax.
Who Pays OASDI Tax?
- Employees: Automatically deducted from your paycheck.
- Employers: Match the employee’s contribution.
- Self-Employed Individuals: Pay both the employee and employer share (12.4%), but they can deduct the employer portion when filing taxes.
What Does OASDI Tax Fund?
The money collected through OASDI tax helps support:
- Retirement Benefits: Workers who have paid into Social Security for at least 10 years (40 credits) become eligible for benefits starting at age 62, with full benefits available at 67 (for those born in 1960 or later).
- Survivor Benefits: If a worker passes away, their spouse, children, or dependents may receive Social Security benefits.
- Disability Benefits: Individuals who become disabled and can no longer work may qualify for Social Security Disability Insurance (SSDI).
Can You Opt Out of OASDI Tax?
For most workers, OASDI tax is mandatory. However, certain groups, such as some religious organizations or specific government employees with alternative retirement plans, may be exempt.
Why Is OASDI Tax Important?
While it may seem like just another paycheck deduction, OASDI tax is an essential part of the U.S. social safety net. It ensures that workers receive financial support in retirement, during disability, or in the event of a loved one’s passing.
Final Thoughts
Understanding OASDI tax helps you see where a portion of your paycheck is going and how it contributes to long-term financial security. If you’re self-employed, it’s especially important to factor in the higher rate when budgeting for taxes.
If you need help filing your taxes, contact us today to get started!
Want to learn more about taxes and financial planning? Check out our other resources on business finances.
