Why Do I Pay OASDI Tax and What Is It For?
Understand your OASDI contributions: Discover their fundamental role in funding Social Security and providing future benefits.
The Old-Age, Survivors, and Disability Insurance (OASDI) tax is a federal payroll tax that finances a significant portion of the U.S. Social Security system. This tax is a mandatory contribution for most working individuals and their employers, directly funding benefits that provide financial security to millions of Americans.
Understanding OASDI
OASDI stands for Old-Age, Survivors, and Disability Insurance. This system functions as a social insurance program, pooling contributions from current workers to pay benefits to eligible recipients and providing a safety net, ensuring a baseline level of financial support in various life circumstances.
The fundamental purpose of OASDI is to protect workers and their families from the financial hardships associated with retirement, a worker’s death, or a severe disability. It operates on a pay-as-you-go basis, meaning current contributions largely fund current benefits. This structure creates an intergenerational compact, where today’s workers contribute to support today’s beneficiaries, with the expectation that future generations will do the same.
How OASDI Contributions Work
OASDI taxes are collected through payroll deductions for employees and direct contributions from self-employed individuals. For employees, the tax is part of the Federal Insurance Contributions Act (FICA) taxes, which also include Medicare. Both the employee and the employer contribute to OASDI.
For 2025, the OASDI tax rate is 6.2% for employees, and employers pay a matching 6.2%, making the total contribution 12.4% of an employee’s wages. The employer withholds the employee’s portion directly from their paycheck and remits it along with their own matching share to the Internal Revenue Service (IRS).
Self-employed individuals are responsible for paying both the employee and employer portions of the OASDI tax, totaling 12.4% of their net earnings from self-employment. This is paid under the Self-Employment Contributions Act (SECA).
A significant aspect of OASDI contributions is the annual wage base limit. For 2025, this limit is $176,100. Any income earned above $176,100 in a given year is not subject to additional OASDI taxation.
Benefits Funded by OASDI
Contributions to OASDI fund three primary categories of benefits: Old-Age benefits, Survivors benefits, and Disability benefits. The eligibility for these benefits is generally tied to a worker’s earnings history and the number of “credits” they accumulate over their working life.
Old-Age benefits, commonly known as retirement benefits, are paid to retired workers who have met specific age and earnings requirements. These benefits provide a steady income stream in retirement, replacing a portion of a worker’s pre-retirement earnings. The amount of the benefit depends on an individual’s lifetime earnings and the age at which they claim benefits.
Survivors benefits are paid to eligible family members of a deceased worker who contributed to Social Security. This can include a surviving spouse, children, or dependent parents. These benefits offer financial protection to families after the death of a wage earner, helping to replace lost income.
Disability benefits are provided to workers who become severely disabled and are unable to engage in substantial gainful activity. To qualify, a worker must have a medical condition that meets Social Security’s strict definition of disability and have accumulated sufficient work credits. These benefits offer financial support when a severe medical condition prevents a person from working.