OASDI Tax: What It Is and Who Pays It
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Are you curious about those taxes on your paycheck and wondering what they’re for? One of them is OASDI tax, which for some workers might be a significant chunk of their pay.
What is OASDI tax?
Also known as Social Security, the OASDI (Old-Age, Survivors, and Disability Insurance) tax is one of two taxes that make up the Federal Insurance and Contributions Act (FICA). The other is a Medicare tax.
The OASDI tax provides financial support to those who have lost income due to retirement, disability or death.
The OASDI tax rate is 6.2% for employees and 12.4% for self-employed people, up to a certain income limit. Collectively, OASDI and Medicare taxes amount to 15.3%.
» Learn more: How FICA taxes work on your paycheck
How does OASDI tax work?
If you’re an employee, the 12.4% OASDI tax is split evenly between you and your employer. This means that 6.2% is automatically deducted from your paycheck, and your employer pays the other 6.2%. It’s considered an additional expense for your employer and won’t be further deducted from your pay.
OASDI tax for self-employed people
If you’re self-employed, you’ll pay both the employee and employer portions of the OASDI tax. That means you’re responsible for the full 12.4% and will have to calculate it yourself (or with the help of a tax pro). OASDI taxes can be paid as often as monthly but are due quarterly. Paying taxes late could result in a bigger tax bill, along with penalties and interest.
While it’s a little extra work, there’s some good news for entrepreneurs: You’re able to deduct half the OASDI tax paid on your annual tax return. Other options, such as forming an S-corporation, could also help lower your OASDI tax.
OASDI limit 2024
The OASDI limit in 2024 is $168,600. This is also called the taxable maximum, meaning that any income above this limit is not subject to OASDI taxes. Employees will contribute at most $10,453.20. The maximum for self-employed people is $20,906.40.
OASDI limit 2025
The OASDI limit for 2025 will be $176,100, a $7,500 increase from 2024. This means that employees will contribute a maximum of $10,918.20 to Social Security, while self-employed people will contribute a maximum of $21,836.40.
Is OASDI tax mandatory?
The OASDI tax is mandatory for most people, but there are exceptions. Any income above the taxable maximum is not subject to the Social Security tax. Those who are self-employed and make less than $400 per year are also exempt.
Local and state government employees are also exempt if they’re only covered by their state or local pension plan. Certain nonimmigrants and nonresidents, depending on the type of visa held, are also granted exemptions. This includes foreign students, researchers and academics at universities, as well as foreign government employees working in the U.S.
Certain religious groups are exempt from Social Security and Medicare taxes, but individuals need to file Form 4029 and receive approval from the IRS. Doing this also waives their right to benefits in the future.
» Dive deeper: What does it mean to be tax-exempt?
