The OASDI tax, which stands for Old-Age, Survivors, and Disability Insurance, is a crucial part of the Social Security program in the United States. It’s a federal tax that most employees see deducted from their paychecks. This tax helps fund important benefits such as retirement income, disability support, and survivors’ benefits for workers and their families. Understanding what the OASDI tax is, how it works, and why it appears on your paycheck is important for anyone employed in California, as it directly impacts your take-home pay and future benefits.
In this article, we’ll break down the details of OASDI tax, explain what it means when you see it on your paycheck, and discuss how it fits into the broader Social Security system.
What is OASDI?
OASDI, or Old-Age, Survivors, and Disability Insurance, is the official name for the Social Security program in the United States. This federal program was established to provide financial support to individuals and their families when they retire, become disabled, or lose a primary wage earner due to death. OASDI serves as a safety net for workers and ensures that they or their dependents receive income in various stages of life.
1. Old-Age (Retirement Benefits)
The “Old-Age” part of OASDI refers to the retirement benefits that workers receive after they have reached the qualifying age and have paid into the Social Security system through their working years. When employees contribute to OASDI, they are essentially building their eligibility for these retirement benefits. Once you reach the full retirement age (which depends on the year you were born), you can start receiving monthly Social Security checks that are calculated based on your earnings over your career. You can find more information about retirement benefits on the Social Security Administration’s website.
2. Survivors’ Benefits
Survivors’ benefits are provided to the family members of deceased workers. If a worker who has paid into the Social Security system passes away, their spouse, children, and even dependent parents may be eligible to receive survivors’ benefits. These payments help provide financial security to family members who relied on the deceased worker’s income. Learn more about survivors’ benefits on the Social Security Survivors Benefits page.
3. Disability Benefits
The “Disability Insurance” part of OASDI is for individuals who are unable to work due to a severe disability. If a person becomes disabled and cannot continue earning a living, OASDI provides monthly disability payments to support them financially. These payments are based on the worker’s prior contributions to the Social Security system, and the disability must meet specific criteria set by the Social Security Administration (SSA). You can explore more about disability benefits on the Social Security Disability Benefits page.
What is OASDI on My Paycheck?
When you look at your paycheck, you’ll often see a line labeled OASDI, which stands for Old-Age, Survivors, and Disability Insurance. This deduction is your contribution to the Social Security system, specifically funding retirement, survivors, and disability benefits. OASDI is a federal tax that is automatically withheld from your wages by your employer.
1. How OASDI is Calculated
The OASDI tax is a percentage of your gross wages. As of 2024, the OASDI tax rate for employees is 6.2% of your income, up to a wage base limit of $168,600. This means that once your earnings exceed this limit in a given year, no additional OASDI tax will be deducted from your paycheck. For example, if you earn $100,000 per year, 6.2% of that amount (or $6,200) will be deducted for OASDI over the course of the year.
Your employer also matches this contribution, paying an additional 6.2% of your wages into the Social Security system. However, this employer contribution does not appear on your paycheck.
2. Where Does the Money Go?
The funds collected through OASDI deductions go directly into the Social Security Trust Fund, which is used to pay out benefits to retirees, disabled individuals, and surviving family members of deceased workers. The contributions you make today help support current beneficiaries, and in turn, your future benefits will be supported by the next generation of workers paying into the system.
You can think of OASDI as a long-term investment in your financial security. By contributing to the system throughout your working life, you build eligibility for Social Security benefits when you retire, become disabled, or in the event of death, your dependents may receive survivors’ benefits.
3. Why OASDI Appears on Your Pay Stub
OASDI appears on your pay stub as a separate deduction from other taxes like federal income tax, Medicare, and California state taxes. It is typically labeled as “OASDI” or simply “Social Security Tax.” Seeing this deduction can help you track how much you’re contributing to the Social Security system over time.
For example, if you earn $4,000 a month, 6.2% of that, or $248, will be deducted as OASDI each month. By the end of the year, you’ll have contributed $2,976 towards Social Security (assuming you don’t exceed the wage base limit).
4. Who Pays OASDI?
OASDI is mandatory for most employees working in the United States, including those in California. If you receive a regular paycheck, you are required by federal law to contribute to the Social Security system. Employers are responsible for withholding OASDI from employees’ paychecks and submitting both the employee and employer contributions to the Social Security Administration.
However, certain groups may be exempt from OASDI taxes, such as some religious organizations or self-employed individuals who may pay into a different system like Self-Employment Contributions Act (SECA) tax. You can find more details on exemptions from OASDI on the Social Security Administration’s Exemptions page.
OASDI Tax Rates and Contribution Limits
The OASDI tax is part of the payroll taxes you pay toward Social Security benefits. The tax rate and contribution limits for OASDI are important to understand, as they determine how much is deducted from your paycheck and how much you contribute toward the Social Security system each year.
1. OASDI Tax Rate
The current OASDI tax rate for employees is 6.2% of your gross wages. This means that for every dollar you earn, 6.2 cents go to fund Social Security programs such as retirement, disability, and survivors’ benefits. Your employer also contributes an additional 6.2%, making the total contribution toward Social Security 12.4% of your earnings, though the employer’s contribution does not show up on your paycheck.
For example, if you earn $50,000 per year, $3,100 (6.2% of $50,000) will be deducted from your paycheck over the course of the year as your OASDI contribution. Your employer will also contribute the same amount on your behalf.
2. Contribution Limits (Wage Base)
There is a limit, known as the Social Security wage base, on the amount of your income that is subject to OASDI tax. In 2024, this wage base is set at $168,600. This means that once your earnings reach $168,600 in a calendar year, OASDI tax will no longer be deducted from your paycheck for the remainder of the year.
For high-income earners, this wage base cap is significant because it limits the total amount you’ll contribute to OASDI in any given year. For instance, if you earn $200,000 annually, you will only pay OASDI tax on the first $168,600, which amounts to $10,453.20 (6.2% of $168,600). After you’ve reached this threshold, no further OASDI tax will be deducted for the rest of the year, though other taxes like Medicare will continue to apply to your full earnings.
3. Employer Contribution
It’s important to note that employers also pay OASDI tax at the same 6.2% rate, but their contributions are based on the same wage base. This means that for each employee, the employer will contribute up to $10,453.20 for OASDI in 2024 if the employee earns at or above the wage base limit. This combined contribution (employee and employer) ensures that the Social Security system is properly funded to pay out future benefits.
4. What Happens If You Have Multiple Jobs?
If you work multiple jobs and your combined earnings from all employers exceed the wage base limit of $168,600, you may end up overpaying OASDI tax, as each employer will deduct OASDI based on the wages they pay you. In such cases, you can claim a refund of the excess OASDI contributions when you file your federal income tax return. The excess amount paid will be credited back to you as part of your overall tax filing.
5. Changes to the Wage Base
The OASDI wage base limit typically increases each year to adjust for inflation and wage growth. These adjustments help ensure that Social Security remains adequately funded to meet the needs of current and future beneficiaries. For up-to-date information on the wage base limit and tax rates, you can visit the Social Security Administration’s OASDI Wage Base page.
Is OASDI Tax Mandatory?
Yes, the OASDI tax is mandatory for most employees in the United States, including those in California. It is a federal payroll tax that both employees and employers are required to pay to fund the Social Security system. This means that if you are employed and receive wages, a portion of your paycheck will automatically be deducted for OASDI.
Are There Exemptions from OASDI?
While the OASDI tax is mandatory for most workers, there are some exemptions for specific groups of individuals:
- Certain Religious Groups: Some religious groups or sects may apply for exemption from paying OASDI tax if they are opposed to receiving Social Security benefits based on religious beliefs. To be exempt, individuals must meet specific criteria and file the necessary forms with the Social Security Administration.
- Certain Government Employees: Some government workers, especially those who are covered under other pension systems, may be exempt from OASDI. These workers might not be required to pay OASDI tax if they contribute to alternative retirement systems, such as certain state or local government pension plans.
- Foreign Workers on Specific Visas: Certain non-resident aliens or foreign employees working in the U.S. under specific visa programs may be exempt from OASDI taxes. The specifics depend on tax treaties between the U.S. and the worker’s home country.
If you fall into one of these exempt categories, your wages may not be subject to OASDI tax. However, for most employees, the OASDI tax is mandatory and deducted automatically from their wages.
Difference Between OASDI and Other Payroll Taxes (Like CASDI)
When looking at your paycheck, you might notice various payroll taxes, including OASDI (Old-Age, Survivors, and Disability Insurance) and CASDI (California State Disability Insurance). Although they both appear as deductions on your pay stub, they serve different purposes and are managed by separate government entities. Understanding the key differences between OASDI and CASDI can help clarify how these payroll taxes function and what benefits they provide.
1. OASDI: A Federal Social Security Tax
OASDI is a federal tax that funds the national Social Security program. It is applied to most employees across the United States and provides funding for three major benefits:
- Retirement benefits for workers who have reached the qualifying retirement age.
- Disability benefits for individuals who can no longer work due to long-term disability.
- Survivors’ benefits for family members of deceased workers who paid into the Social Security system.
The OASDI tax rate is 6.2% for employees, with employers contributing an additional 6.2%. These contributions are managed by the Social Security Administration (SSA) and are essential for the long-term financial security of individuals after retirement or in the event of disability or death. OASDI applies to wages up to the wage base limit ($168,600 for 2024), after which no additional tax is deducted for the rest of the year.
2. CASDI: A State Disability Insurance Tax
CASDI, on the other hand, is a state-level tax specific to workers in California. It funds the California State Disability Insurance program, which provides short-term benefits for employees who are unable to work due to non-work-related illness, injury, pregnancy, or childbirth. CASDI also supports Paid Family Leave (PFL), which allows employees to take time off to care for a sick family member or bond with a new child.
Unlike OASDI, CASDI:
- Only applies to employees in California.
- Covers short-term disabilities, typically up to one year, compared to the long-term coverage provided by OASDI.
- Funds Paid Family Leave, a benefit not covered by OASDI.
The current CASDI tax rate is 0.9% of an employee’s wages (as of 2024), up to the taxable wage base of $153,164. This means employees earning above this threshold stop paying CASDI for the rest of the year once they reach the limit. CASDI is managed by the California Employment Development Department (EDD), which administers disability and family leave benefits for state workers.
For more information on CASDI, read our article What is California SDI (CASDI)? Taxes, Benefits, and Exemptions.
