Do You Have to Pay OASDI Tax and Are There Exemptions?
Understand the fundamental rules governing your federal retirement and disability tax contributions and discover when different conditions apply.
OASDI tax, commonly known as Social Security tax, is a mandatory federal payroll tax in the United States. It forms one part of the Federal Insurance Contributions Act (FICA) taxes, with the other being Medicare tax. The primary purpose of OASDI is to fund the Social Security program, which provides financial support to millions of Americans, including retired workers, individuals with disabilities, and survivors of deceased workers. Contributions collected through OASDI are channeled into trust funds that ensure these benefits are paid out.
Taxpayer Categories
The responsibility for paying OASDI tax is distributed among various taxpayer categories, primarily employees, employers, and self-employed individuals. For employees, a portion of their gross wages is automatically withheld from each paycheck for OASDI. Employers are responsible for remitting this withheld amount to the Internal Revenue Service (IRS) and contributing a matching share from their own funds. This means the total OASDI tax for an employed individual is split between the employee and the employer.
Self-employed individuals bear the full responsibility for both the employee and employer portions of the OASDI tax. This combined obligation is paid through self-employment tax, which also includes Medicare tax. These individuals make quarterly estimated tax payments to cover their self-employment tax liabilities. Self-employed individuals can deduct one-half of their self-employment tax when calculating their adjusted gross income.
Taxable Wages and Limits
OASDI tax applies to gross wages for employees and net earnings from self-employment for self-employed individuals. For 2025, the tax rate is 6.2% for employees and a matching 6.2% for employers. This results in a combined rate of 12.4% for the OASDI portion of FICA taxes. Self-employed individuals pay this full 12.4% rate on their net earnings.
The annual Social Security wage base limit, also known as the taxable maximum, applies to OASDI taxation. For 2025, this limit is $176,100. This means that any earnings above this threshold are not subject to the OASDI portion of the tax. For instance, an employee earning $200,000 in 2025 would only pay OASDI tax on the first $176,100 of their income. The Medicare tax, however, does not have an income cap and applies to all earnings.
Specific Situations and Exemptions
While most U.S. workers are required to contribute to OASDI, certain situations allow for exemptions or different rules. Some non-resident aliens, depending on their visa type and the nature of their work, may be exempt from OASDI taxes. For example, foreign students and exchange visitors (F-1, J-1, M-1, or Q-1 visa holders) are exempt from Social Security and Medicare taxes for a certain period while they remain non-resident aliens for tax purposes and their employment aligns with their visa purpose. This exemption applies for their first five calendar years in the U.S. unless they become resident aliens.
Certain government employees may also be exempt if they are covered by an alternative state or local government retirement system that provides benefits at least as generous as Social Security. This applies to employees who participate in their public employer’s pension plan. Members of religious sects that oppose accepting public insurance benefits, such as the Amish or Mennonites, can apply for an exemption from Social Security and Medicare taxes by filing IRS Form 4029, though this waives their right to future benefits. Clergy members are treated as employees for income tax purposes but are considered self-employed for Social Security and Medicare taxes, making them responsible for the full self-employment tax. They can elect out of coverage under specific circumstances.