OASDI Tax

As a business owner or human resources manager, you may come across the term 'OASDI Tax' in payroll discussions. OASDI stands for Old-Age, Survivors, and Disability Insurance, commonly known as Social Security. This tax is part of the Federal Insurance Contributions Act (FICA) and is used to fund Social Security benefits for retirees, disabled individuals, and survivors of deceased workers. Understanding OASDI Tax is important because it affects both your payroll processes and your employees' future benefits.

For example, in 2025, the OASDI tax rate is 6.2% for both employees and employers, totaling 12.4% of an employee's wages up to a certain income limit. If an employee earns $100,000 in 2025, $6,200 would be withheld from their paycheck for OASDI, and you, as the employer, would contribute an additional $6,200. This means the total OASDI contribution for that employee would be $12,400. It's essential to accurately calculate and remit these taxes to comply with federal regulations and ensure your employees receive the Social Security benefits they are entitled to.

What Does OASDI Tax Cover ?

OASDI tax is a social security tax that covers a range of social security benefits to eligible individuals. These benefits are Retirement, Survivors and Disability Benefits: 

• Retirement Benefits: Provides monthly payments to individuals who have reached retirement age (at least 62 years old), replacing a portion of their pre-retirement income.
• Survivors Benefits: Offers financial assistance to family members of deceased workers, including spouses and dependent children.
• Disability Benefits: A portion of the revenue generated from OASDI tax goes to a trust fund administered by the Social Security Disability Insurance (SSDI) program. This benefit supports individuals (and their family) who are unable to work due to qualifying disabilities which are outlined by the Social Security Administration, ensuring contributors receive income despite their disability or inability to work.

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How Does OASDI Tax Work?

OASDI tax is used to cover approximately 96% of jobs in the United States through mandatory taxes under the Federal Insurance (FICA) and Self-Employment Contribution Acts ((SECA).

The OASDI tax rate for 2025 is set at 6.2%. This means that employers deduct 6.2% of an employed worker’s gross wages from their paycheck. Employers are required to match this employment contribution, making the total contribution 12.4%. 

Self-employed individuals are responsible for paying both the employee’s and employer’s share of the employment contribution (the entire 12.4%). However, self-employed individuals are allowed to deduct half of the self-employment tax when calculating their federal income tax.

The OASDI stipulates the maximum amount of gross earnings that can be subject to taxation. This is known as the taxable maximum and changes each year based on the average wage index. 

For example, the taxable maximum for 2025 is $176,100, so earnings above this threshold are not subject to OASDI tax. This means that if an individual’s earnings for 2025 were equal to or larger than $176,000 , their OASDI tax would amount to $10,918.20 and their employer would have to match this amount. A self-employed individual would pay $21,836.40 but could deduct half of this amount from their taxable income as a business expense. 

The revenue generated from this payroll tax scheme is used to finance social insurance programs through the Federal Old-Age and Survivors Insurance Trust Fund and the Federal Disability Insurance Trust Fund. These funds are used to pay benefits and the expenses associated with operating the programs.

What Is The Difference Between OASDI and Medicare Tax? 

The OASDI tax and the Medicare tax are both components of the FICA but serve different purposes. While OASDI tax funds benefits for retirees, survivors, and individuals with disabilities, Medicare tax finances hospital and medical insurance for individuals aged 65 and older. The Medicare tax rate is 1.45% for both employees and employers, with no wage base limit, meaning all covered wages are subject to this tax. Additionally, an extra 0.9% Medicare tax applies to individuals earning over $200,000 annually.

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What Are the Responsibilities of Employers Regarding OASDI Tax?

Employers are beholden to several responsibilities regarding OASDI Tax in order to stay compliant: 

• Withholding Employment Contributions: Employers must deduct 6.2% of each employee's gross wages for the OASDI tax.
• Matching Contributions: In addition to the employee's contribution, employers are required to contribute an additional 6.2% from their own funds (effectively matching the employee's contribution).
• Remitting Taxes to the IRS: Employers are responsible for depositing both the employee's withheld OASDI taxes and the employer's matching contributions to the Internal Revenue Service (IRS) on a regular schedule, which can be semi-weekly or monthly, depending on the business's tax liability.
• Reporting Employment Taxes: Employers must report wages paid and employment taxes withheld by filing the appropriate tax returns with the IRS, such as Form 941 (Employer's Quarterly Federal Tax Return) or Form 944 (Employer's Annual Federal Tax Return).
• Maintaining Accurate Records: Employers must keep detailed records of all wages paid and taxes withheld for at least four years.
• Adhering to Wage Base Limits: Employers should be aware of the annual Social Security wage base limit.

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What Are The Consequences If An Employer Fails To Pay OASDI Taxes?

Employers are legally obligated to withhold and remit OASDI taxes from their employees' gross wages. Individuals responsible for collecting and paying payroll taxes, such as business owners or financial officers, can be held personally liable for unpaid amounts. Failure to fulfill this duty can result in significant consequences for employers:

Monetary Penalties and Interest

The Internal Revenue Service (IRS) imposes penalties on employers who fail to pay OASDI taxes. These penalties accrue over time and can substantially increase the total amount owed. Additionally, interest is charged on unpaid taxes, further increasing the amount owed.

Trust Fund Recovery Penalty (TFRP)

If an employer willfully fails to collect, account for, and pay over payroll taxes, the IRS may assess the Trust Fund Recovery Penalty. This penalty is equal to the total amount of the unpaid trust fund tax and can be imposed on any responsible person within the organization.

Liens and Asset Seizure

Persistent non-payment can lead the IRS to place a lien on the employer's assets, including property and bank accounts. This legal claim ensures the government has a right to the employer's property as security for the unpaid taxes. In severe cases, the IRS may proceed with asset seizure to satisfy the tax debt.

Criminal Charges

Willful failure to pay OASDI taxes can result in criminal prosecution. Convicted employers may face fines and imprisonment for up to five years, depending on the severity of the offense. 

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Is Anyone Exempt From Paying OASDI Taxes? 

While the OASDI tax is mandatory for most U.S. workers, certain groups may be exempt:

• Self-Employed Individuals with Low Earnings: Self-employed persons earning less than $400 annually are exempt from paying OASDI taxes.
• Members of Certain Religious Groups: Individuals belonging to specific religious sects that conscientiously oppose public insurance may apply for exemption by submitting IRS Form 4029. Approval requires meeting stringent criteria, including waiving rights to future Social Security benefits.
• Nonresident Aliens and Foreign Scholars: Some nonimmigrant and nonresident aliens, particularly those in the U.S. temporarily under specific visas (e.g., certain foreign researchers and academics), may be exempt from OASDI taxes. Eligibility depends on visa type and adherence to IRS guidelines.

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