Is OASDI Considered a Federal Tax?

Old-Age, Survivors, and Disability Insurance (OASDI) is the official name for the Social Security program in the United States. OASDI contributions are a form of federal tax. This tax helps fund benefits for retirees, individuals with disabilities, and families of deceased workers.

Understanding OASDI

OASDI is a federal social insurance program that offers income support to eligible individuals and their families. The program is specifically designed to replace a portion of income lost due to old age, the death of a spouse, or disability. This system is funded through mandatory contributions from workers and their employers.

The “Old-Age” component provides monthly payments to individuals who have reached retirement age, starting at age 62, with full benefits available at the full retirement age, which varies by birth year between 66 and 67 years old. “Survivors” benefits offer financial assistance to family members of a worker who has passed away. The “Disability Insurance” portion provides benefits to insured employees unable to work due to qualifying disabilities. Eligibility depends on accumulating “work credits” through covered employment, with 40 credits (equivalent to about 10 years of work) required to be fully insured.

How OASDI is Collected

OASDI contributions are primarily collected through the Federal Insurance Contributions Act (FICA) for employees and employers. FICA tax encompasses both Social Security (OASDI) and Medicare taxes. For employees, 6.2% of their gross wages are deducted for OASDI, and employers contribute a matching 6.2%. This results in a total contribution of 12.4% of an employee’s wages directed towards OASDI.

There is an annual wage base limit for Social Security contributions. For 2025, this limit is $176,100, meaning any earnings above this amount are not subject to OASDI tax.

For self-employed individuals, OASDI contributions are paid through the Self-Employment Contributions Act (SECA) tax. Self-employed individuals are responsible for paying the entire 12.4% OASDI tax themselves, as they act as both the employer and employee. They can, however, deduct half of this self-employment tax on their federal income tax return to offset some of the financial impact. These self-employment taxes are calculated and paid quarterly to the Internal Revenue Service (IRS).

Distinguishing OASDI from Other Federal Taxes

OASDI stands apart from other federal taxes, such as federal income tax, due to its specific purpose and collection structure. Federal income tax is levied on an individual’s total taxable income and features a progressive rate system, meaning higher earners pay a larger percentage of their income in taxes. There is no cap on the amount of income subject to federal income tax.

In contrast, OASDI contributions are specifically tied to earned income up to the annual wage base limit, which is $176,100 for 2025. The funds collected from OASDI taxes are directly channeled into the Social Security Trust Funds, which are then used to pay current and future Social Security benefits. Another component of FICA is the Medicare tax, which is also a federal payroll tax. While Medicare tax, at a rate of 1.45% for both employee and employer (totaling 2.9%), is also mandatory, it funds healthcare benefits for the elderly and disabled and has no wage base limit. While both OASDI and Medicare are federal taxes, their distinct funding mechanisms, benefit purposes, and income limitations differentiate them.