What Is the OASDI Tax and Who Is Required to Pay It?
Learn about the OASDI tax, its fundamental role in Social Security, and how these essential contributions are made to support future benefits.
The Old-Age, Survivors, and Disability Insurance (OASDI) tax is a fundamental component of the United States’ financial system, serving as the primary funding mechanism for the Social Security program. This mandatory payroll tax provides financial security to millions of Americans. Its purpose is to collect contributions that will later be disbursed as benefits to eligible individuals and their families. This system ensures a safety net for various life circumstances, supporting citizens across different stages of life.
The Core Elements of OASDI
The OASDI tax directly supports three distinct types of insurance. Old-Age Insurance (OA) provides retirement benefits to eligible workers who have contributed to the system throughout their careers, extending to their spouses and dependents. Survivors Insurance (S) offers financial protection to the families of deceased workers, including benefits for surviving spouses, dependent children, and sometimes dependent parents. Disability Insurance (DI) provides income to workers who become severely disabled and are unable to engage in substantial gainful activity, with benefits also extending to their families. These three components form the foundation of the Social Security benefits system, aiming to protect individuals and families from the financial impact of old age, death, or disability.
How OASDI Contributions are Made
OASDI contributions are a mandatory payroll deduction for most workers. For employees, a portion of their gross wages is withheld as OASDI tax. The current employee tax rate for OASDI is 6.2% of wages, as outlined in 26 U.S. Code. This amount is automatically deducted from each paycheck by the employer.
Employers also contribute a matching portion for each employee. The employer tax rate is also 6.2% of the employee’s wages. This means that for every dollar an employee contributes, their employer contributes an equal amount, bringing the combined contribution rate to 12.4% of the employee’s wages.
Self-employed individuals are responsible for paying both the employer and employee portions of the OASDI tax. This combined rate is 12.4% of their net self-employment income, paid through the Self-Employment Contributions Act (SECA) tax. Self-employed individuals can deduct one-half of their self-employment tax when calculating their adjusted gross income, which helps offset this dual responsibility.
A crucial aspect of OASDI contributions is the annual wage base limit, also known as the contribution and benefit base or taxable maximum. This limit represents the maximum amount of earnings subject to OASDI tax each year. For earnings in 2025, this base is $176,100. Earnings above this threshold are not subject to the OASDI tax. This limit changes annually based on changes in the national average wage index.
Employers are responsible for withholding the employee’s share of OASDI tax and remitting both the employee and employer portions to the Internal Revenue Service (IRS). Self-employed individuals typically pay their OASDI taxes through estimated tax payments throughout the year.