Why Is the OASDI Tax on My Paycheck?
Demystify the federal payroll deduction known as OASDI. Learn why it's on your paycheck and its role in essential social support.
OASDI is a mandatory federal payroll tax that appears on most pay stubs. It reflects contributions made to support various government programs within the nation’s social insurance framework.
Understanding OASDI on Your Paycheck
OASDI stands for Old-Age, Survivors, and Disability Insurance, commonly known as Social Security. This federal payroll tax is a mandated deduction under the Federal Insurance Contributions Act (FICA). Federal law requires most employed individuals and their employers to contribute to this system.
Both the employee and the employer fund this tax. The FICA tax encompasses both OASDI and Medicare taxes, with each component supporting distinct federal initiatives.
This mandatory deduction applies to earned income, including salaries, wages, bonuses, tips, and commissions. Payroll deductions ensure a continuous revenue stream for the programs it supports.
How OASDI Contributions are Calculated
OASDI tax is determined by a specific tax rate applied to gross wages. For 2025, the OASDI tax rate is 6.2% for employees. Employers contribute an equal 6.2%, bringing the total combined contribution to 12.4% of an employee’s wages. This means that for every dollar an employee contributes, their employer matches that amount.
OASDI calculation includes an annual wage base limit, also known as the taxable maximum. For 2025, this limit is set at $176,100. This means that any earnings above this threshold are not subject to the OASDI tax. For example, if an individual earns $200,000 in 2025, they will only pay OASDI tax on the first $176,100 of their income.
To illustrate, if an employee’s gross wages for a pay period are $3,000, and their year-to-date earnings are below the wage base limit, the OASDI deduction would be $186 ($3,000 multiplied by 6.2%). The employer would also contribute $186. Once an employee’s cumulative earnings for the year reach $176,100, no further OASDI tax will be withheld from paychecks for the remainder of that year.
The Programs Funded by OASDI
The funds collected through OASDI contributions are allocated to the Social Security program. This program provides financial assistance across three categories: Old-Age, Survivors, and Disability Insurance. These benefits offer income security.
The Old-Age component provides retirement benefits to qualified workers who have contributed to the system. The Survivors Insurance offers financial support to the families of deceased workers, including spouses and dependent children. The Disability Insurance provides income to individuals who are unable to work due to a qualifying medical condition.
While OASDI is a major component of FICA, it differs from Medicare (Hospital Insurance). Medicare taxes are also collected through payroll deductions, but they have a separate tax rate of 1.45% for both employees and employers. Furthermore, unlike OASDI, there is no wage base limit for Medicare tax, meaning all earned income is subject to this contribution.