Tax withholding is an essential piece of the payroll puzzle. One of the taxes you must withhold from employee wages is the Old-Age, Survivors, and Disability Insurance (OASDI) tax. You must also contribute an employer portion of the OASDI tax. OASDI tax is more commonly referred to as Social Security tax.
How much is OASDI tax? What does the tax fund? Get answers to these questions—and more—when you read this article.
Table of Contents
- What is OASDI tax?
- Is OASDI tax mandatory?
- OASDI vs. FICA tax
- How much is OASDI tax?
- How to calculate OASDI tax [Example]
- What to do after calculating OASDI tax
- Top employee question: “What is OASDI tax on my paycheck?”
What is OASDI tax?
Old-Age, Survivors, and Disability Insurance tax is a payroll tax that employers and employees pay. OASDI tax is a percentage of each employee’s income.
The tax funds the federal OASDI program, which provides monthly benefits to qualifying:
- Retired workers
- Disabled workers
- Retired and disabled workers’ dependents
- Survivors of insured workers
The Social Security Administration administers the OASDI program. As a result, OASDI tax is more commonly referred to as Social Security tax. And, OASDI benefits are referred to as Social Security benefits.
For example, workers who pay OASDI tax receive retirement benefits when they retire.
Is OASDI tax mandatory?
Yes, OASDI tax is mandatory. Federal law requires that employers withhold and contribute OASDI tax on all eligible income. Exceptions to the mandate include certain members of certain religious groups and students.
Self-employed individuals must also pay OASDI tax in the form of self-employment taxes.
OASDI vs. FICA tax
FICA tax, or Federal Insurance Contributions Act tax, is a tax employers and employees pay. FICA includes Social Security and Medicare taxes.
Collected FICA tax goes into three trust funds:
- Old-Age (retirement) and Survivors Insurance (OASI)
- Disability Insurance (DI)
- Medical Hospital Insurance (HI)
So, what’s the difference between OASDI and each part of the FICA tax (Social Security and Medicare)?
What is the difference between Social Security and OASDI?
So, what is the difference between OASDI tax vs. Social Security? OASDI tax is another name for Social Security tax.
OASDI tax funds Old-Age and Survivors Insurance and Disability Insurance programs. The tax is part of FICA tax, alongside Medicare tax.
What’s the difference between OASDI vs. Medicare tax?
OASDI (Social Security) tax is not the same as Medicare tax. Medicare tax funds Medicare’s Hospital Insurance (HI) program.
The Medicare HI program provides hospital and medical insurance, and prescription drug coverage to eligible people (e.g., those at least 65 years old).
Again, the OASDI tax funds the OASDI program, which provides benefits such as retirement income.
How much is OASDI tax?
OASDI tax is a flat rate of 12.4%, split evenly between employers and employees. Employers withhold 6.2% of each employee’s wages and contribute a matching 6.2%.
The OASDI tax has a taxable maximum, also known as the Social Security wage base. When an employee earns above the Social Security wage base, stop withholding and contributing the tax. The taxable maximum is subject to change annually. The wage base for 2024 is $168,600.
Again, OASDI is just one part of FICA tax. The other part—Medicare tax—is a flat rate of 2.9%, split evenly between employers (1.45%) and employees (1.45%). There is no Medicare taxable maximum. Instead, there’s an additional Medicare tax of 0.9% you must withhold from employee wages after they earn $200,000.
How to calculate OASDI tax [Example]
Calculate OASDI tax by multiplying each employee’s taxable income by 6.2%. This is the employee OASDI tax portion. You must pay a matching amount for the employer’s OASDI tax portion.
Let’s say an employee has $2,000 in taxable income during a pay period. Multiple $2,000 by the employee tax rate of 6.2% to calculate OASDI tax. Do the same thing for the employer tax rate of 6.2%:
$2,000 (Taxable Income) X 6.2% (OASDI Employee Tax Rate) = $124
$2,000 (Taxable Income) X 6.2% (OASDI Employer Tax Rate) = $124
$124 (Employee Responsibility) + $124 (Employer Responsibility) = $248 Total
Withhold $124 from your employee’s wages and contribute $124 for the employer portion. The total OASDI tax you must remit to the government is $248 for this employee, this pay period.
Make your life easier. Use payroll software to calculate OASDI tax on your behalf. In addition to calculating Social Security tax, payroll software calculates federal income, Medicare, federal unemployment (FUTA), and state and local taxes.
What to do after calculating OASDI tax
Remit withheld and contributed OASDI tax—plus other employment taxes—monthly or semiweekly. Your deposit schedule is based on a lookback period.
Report withheld and contributed OASDI tax—plus other employment taxes—on Form 941, Employer’s Quarterly Federal Tax Return, or Form 944, Employer’s Annual Federal Tax Return (if applicable). Also, report withheld Social Security tax on each employee’s Form W-2.
Make your life a lot easier. Use full-service payroll if you want the payroll provider to also handle federal, state, and local tax filings and deposits.
Top employee question: “What is OASDI tax on my paycheck?”
Your employee’s pay stub should include gross wages, employee taxes and deductions, employer taxes and contributions, and net pay.
Pay stubs typically list OASDI/Social Security tax as “Social Security tax” or “FICA tax” (which includes Medicare tax). But depending on how you generate pay stubs, some pay stubs might still list the tax as “OASDI tax.”
If your company’s pay stubs list “OASDI tax,” your employee may ask you, “What is OASDI tax on my paycheck?”
And now, you know how to respond. You can explain that the OASDI deduction on the pay stub is for OASDI tax, which is another way to say Social Security tax. You can also let the employee know that Social Security is a mandatory tax that funds Social Security benefits, such as retirement income.
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This is not intended as legal advice; for more information, please click here.
