Does OASDI Count as a Federal Tax? An Explanation
Understand the federal classification of your Social Security contributions. Learn how these mandatory deductions fit into the U.S. tax system.
Many individuals see “OASDI” on their pay stubs. This abbreviation stands for Old-Age, Survivors, and Disability Insurance, a significant deduction from earnings. Understanding this deduction clarifies payroll withholdings and contributions to federal programs. This article explains if OASDI is a federal tax and what it entails.
Understanding OASDI
Old-Age, Survivors, and Disability Insurance (OASDI) is the formal name for Social Security. This federal program provides financial support to millions of Americans. Its purpose is to partially replace income lost due to retirement, disability, or the death of a worker.
The “Old-Age” component provides retirement benefits. “Survivors” offers financial assistance to dependents of deceased workers, such as spouses and children. “Disability Insurance” provides income to individuals unable to work due to a qualifying disability. Benefits are determined by a worker’s contributions to the system over their working life.
OASDI and the FICA Tax
OASDI is collected through the Federal Insurance Contributions Act (FICA) tax, a mandatory payroll deduction. FICA tax consists of two components: OASDI (Social Security) and Medicare taxes. These taxes are split between employees and employers.
For OASDI, both the employee and employer each contribute 6.2% of the employee’s gross wages, totaling 12.4%. This tax applies up to an annual wage base limit, which for 2025 is $176,100. Earnings above this amount are not subject to the OASDI tax.
Payroll Taxes as Federal Taxes
Payroll taxes, including FICA taxes that encompass OASDI, are classified as federal taxes. The U.S. federal government levies these taxes to fund its operations and programs. The Internal Revenue Service (IRS) collects these payroll taxes.
Funds from these taxes are deposited into federal trust funds, such as the Old-Age and Survivors Insurance (OASI) Trust Fund and the Disability Insurance (DI) Trust Fund. These trust funds are dedicated to paying out Social Security benefits. This collection and allocation to federal programs establishes OASDI as a federal tax.
Distinguishing OASDI from Federal Income Tax
While both OASDI and federal income tax are obligations to the federal government, they serve different purposes. Federal income tax is levied on an individual’s taxable income and funds general government operations and public services. This tax can be progressive, with higher earners paying a larger percentage of their income.
In contrast, OASDI, as part of FICA, is earmarked to fund Social Security benefits, including retirement, survivor, and disability payments. Unlike federal income tax, OASDI has a wage base limit; contributions stop once earnings reach this annual threshold. This difference in purpose and application shows OASDI is a federal tax, but distinct from federal income tax.