Is OASDI a Federal Tax? How It’s Collected and Used
Explore the nature of a foundational federal tax that underpins essential national support, understanding its structure and how contributions benefit society.
Old-Age, Survivors, and Disability Insurance (OASDI) is a federal tax, commonly recognized as Social Security. It finances benefits for millions of Americans, including retirees, individuals with disabilities, and the families of deceased workers.
Understanding OASDI
OASDI encompasses three distinct types of social insurance benefits. Old-Age Insurance (OAI) provides retirement benefits to eligible workers and their dependents, such as spouses and children, once they reach a certain age and have accumulated sufficient work credits. The program aims to partially replace income lost due to retirement.
Survivors Insurance (SI) offers financial support to the families of deceased workers. This can include surviving spouses, children, and dependent parents, ensuring continued income after the worker’s death. Eligibility and benefit amounts are based on the deceased worker’s earnings history and their relationship to the survivors.
Disability Insurance (DI) provides income to workers who become disabled and are unable to work. To qualify, individuals must meet specific medical criteria and have earned a certain number of work credits through their employment. These benefits offer a financial safety net for those whose ability to earn a living is significantly impaired.
How OASDI is Collected and Utilized
The collection of OASDI taxes primarily occurs through two federal acts. The Federal Insurance Contributions Act (FICA) governs contributions for employees and employers. Under FICA, a portion of an employee’s gross wages is withheld from their paycheck, and their employer contributes a matching amount.
For 2025, the OASDI tax rate is 6.2% for employees, with employers contributing an additional 6.2%, totaling 12.4% of an employee’s wages. This tax applies up to an annual wage base limit, which is $176,100 for 2025. Any earnings above this threshold are not subject to the OASDI tax.
Self-employed individuals pay their OASDI contributions under the Self-Employment Contributions Act (SECA). Since they act as both employee and employer, self-employed individuals are responsible for paying the entire 12.4% OASDI tax. However, they can deduct half of this amount on their federal income tax return.
The collected OASDI taxes are deposited into specific Social Security trust funds: the Old-Age and Survivors Insurance Trust Fund (OASI) and the Disability Insurance Trust Fund (DI). These funds are then used to pay current benefits to eligible retirees, survivors, and disabled individuals. The system largely operates on a “pay-as-you-go” basis, meaning current contributions fund current benefits.