The modern pay stub can seem complex, featuring various acronyms that may be unfamiliar. One such abbreviation is OASDI, which stands for “old-age, survivors, and disability insurance.” This deduction has been a part of paychecks for many years, yet many may not fully understand its purpose.
While it may look confusing, OASDI is simply the official name for Social Security. This guide cuts through the jargon to explain everything you need to know about OASDI tax, from 2025 rates to calculation methods that determine your future benefits.
What is OASDI tax?
OASDI stands for “old-age, survivors, and disability insurance,” and is commonly referred to as Social Security tax. This mandatory payroll tax funds the national Social Security program administered by the US Social Security Administration—providing crucial financial support to millions of Americans.
The OASDI tax is one of two components that make up FICA taxes (Federal Insurance Contributions Act taxes), along with Medicare taxes. While Medicare taxes fund health care benefits for seniors, OASDI taxes specifically support a trio of essential monthly benefits, as well as program management costs (of which half a percent of OASDI tax goes toward).
Together, the Social Security and Medicare system presents one of the most significant social insurance programs in the US, structured through trust funds that collect paycheck contributions from current workers to pay benefits to current retirees, disability beneficiaries, and survivors.
Retirement income
Eighty-five percent of the OASDI tax is put into a trust fund that pays monthly retirement benefits to retired workers. Benefits are based on a worker’s lifetime earnings, and an eligible beneficiary must have earned at least 40 work credits and be at least 62 years old.
Disability benefits
Fifteen percent of the OASDI tax goes into a trust fund administered by the Social Security Disability Insurance (SSDI) program. SSDI provides benefits to eligible insured workers—and their family members—who become unable to work due to qualifying disabilities. Benefits are calculated based on a worker’s lifetime earnings.
Survivor benefits
If an employee dies, monthly Social Security benefits transfer to the surviving next of kin. Benefits are calculated based on the deceased’s earnings prior to death and relationship to the survivor. A spouse must have been in a relationship with the eligible worker at the time of the worker’s death.
OASDI tax rates
The 2025 OASDI tax rates are set by statute and have remained the same since 1990. There are two rate sets, one applied to traditional employee-employer relationships and another applied to self-employed individuals.
Employee and employer rate
Employees pay 6.2% of their gross wages toward OASDI tax, while employers contribute an equal 6.2%, making the total rate 12.4%. This cost-sharing arrangement means that payroll taxes are split evenly between employers and their workers, reducing the individual burden on each party. The 6.2% payroll deduction on employee wages appears on every paycheck as an OASDI deduction, calculated based on the employee’s wages before other deductions.
Self-employed rate
Self-employed workers face a different situation than traditional employees, since they function as both employer and employee. Self-employed individuals must pay the full 12.4% OASDI tax rate on their net earnings from self-employment. However, they can deduct half of their self-employment tax as a business expense, which provides some tax relief and levels the playing field between self-employed workers and traditional employees. Self-employed workers earning less than $400 per year are exempt from OASDI taxes, however.
OASDI wage base limit
A critical aspect of OASDI taxes is the wage base limit or taxable maximum. The limit imposes a cap on the portion of income from which an OASDI tax percentage can be calculated. For 2025, the limit is set at $176,100, which is a $7,500 increase from 2024’s limit of $168,600. The limit means that workers only pay OASDI tax on the first $176,100 of annual wages. Any income earned above the OASDI limit is not subject to Social Security taxes, though it remains subject to Medicare and other employment taxes.
How to calculate OASDI
Calculating OASDI tax involves four straightforward steps. Whether you’re processing payroll as a business owner or checking your own deductions, understanding this calculation ensures compliance and prevents costly errors or unnecessary withholding.
1. Determine taxable wages
First, calculate your or an employee’s gross wages for a given pay period. This includes salary, hourly wages, tips, bonuses, and most other forms of compensation. However, if an employee has paid part or all of a health insurance premium or contributed pre-tax dollars to a retirement plan, exclude those amounts from the gross wages calculation.
For self-employed individuals with no employer to set up pre-tax benefit arrangements, insurance premiums can be deducted as a business expense when calculating net self-employment income, which reduces OASDI tax base. For retirement contributions, self-employed people can make tax-deductible contributions to SEP-IRAs, solo 401(k)s, or other qualified plans, but these deductions apply to income tax liability rather than OASDI tax liability.
2. Apply the wage base limit
Next, check whether you or the employee earns income that approaches or exceeds the annual wage base limit ($176,100 for 2025). If the cumulative annual earnings exceed this amount, OASDI taxes apply only to income earned up to that limit.
3. Calculate the tax amount
When calculating OASDI for an employee, multiply taxable wages by 6.2%. Then match this amount, contributing an additional 6.2%. For self-employed individuals, multiply net self-employment income by 12.4%.
4. Determine taxable wages
Employers can report OASDI tax withholding on quarterly IRS Form 941 and remit payments according to your business’s deposit schedule. Self-employed workers can pay OASDI taxes on a quarterly basis using IRS Form 1040-ES. These payments are estimated based on prior year tax payments. They can also pay annually with their tax return using Schedule SE.
Example OASDI calculations
Let’s take a look at three examples to understand how OASDI tax is practically applied. Joe, an eligible employee, earns an annual salary of $80,000. His monthly gross salary breaks down to $6,667. His OASDI obligation as an employee would be 6.2% of this amount, or $413.35. His employer would match that contribution for a total OASDI contribution of $826.70. His annual OASDI tax obligation would be $80,000 x 12.4%, or $9,920.
Now let’s say Joe earned a salary of $180,000. OASDI taxes would only apply to the first $176,100. So, 6.2% of that limit is $10,918.20, or $909.85 a month. No OASDI taxes would be collected on $3,900 of Joe’s income.
If Joe were self-employed, earning $60,000 in self-employed income, his OASDI tax obligations would break down as follows: As a self-employed worker, Joe would be responsible for paying the full 12.4% on his self-employed income. This would be $7,440 a year, or about $617 a month in OASDI taxes. While Joe must pay the full $7,440 in OASDI taxes, he can deduct half of that amount for tax purposes, which reduces his overall tax burden but doesn’t change his OASDI obligations.
Payroll tools and resources
For small business owners managing payroll, using established payroll services and consulting with tax professionals can prevent costly errors. Employers who fail to withhold and remit these payments can face severe financial penalties and sometimes even criminal liability. Many businesses also use payroll software to automate OASDI tax calculations and ensure ongoing compliance and accuracy. A payroll accounting partner can also help.
OASDI tax FAQ
Is OASDI tax mandatory?
Yes, OASDI tax is mandatory for most employers, employees, and self-employed individuals under the Federal Insurance Contributions Act. However, there are exemptions for certain religious groups, government employees (both foreign and domestic), and self-employed people earning less than $400 annually. Failure to pay required OASDI taxes can result in penalties and legal consequences.
Who is exempt from OASDI tax?
Both the employee and employer portions are waived for qualifying individuals in these groups:
- Religious groups like the Amish and Mennonites
- State government employees covered by their own local pension plan
- Foreign government employees working in official capacities in the United State
- Foreign students, researchers, and academics working at American universities under certain visa types
- Self-employed workers who earn beneath a minimum threshold ($400 a year)
- Qualifying churches and church-controlled organizations can also elect exemption from employer withholding obligations
Is OASDI the same as Social Security?
Yes, OASDI and Social Security refer to the same program. Whether you see “OASDI” or “Social Security” on your pay stub, both fund the same programs.
How much does OASDI take out of your paycheck?
Employees pay 6.2% of their gross wages, up to the 2025 wage base limit of $176,100. High earners pay OASDI only on that first $176,100 of their income. Anything earned beyond that is not subject to the tax.
