What is OASDI tax? How does it work?

OASDI (Old-Age, Survivors, and Disability Insurance) tax, commonly known as the Social Security tax, is one of the key payroll taxes collected in the United States under the Federal Insurance Contributions Act (FICA). Both employees and employers contribute to this tax, which funds the Social Security program.

Let’s explore what OASDI is, how it works, who pays for it, and what employers need to know about it.

What is OASDI tax?

OASDI is Social Security’s official title. Social Security taxes fund essential benefits like retirement and disability assistance. This tax, mandated under FICA, aims to ensure financial security for millions of Americans. 

How does OASDI work?

OASDI is a federal tax collected under FICA to fund Social Security programs. Other FICA taxes include the Medicare tax.

The OASDI tax collects contributions to support retirees, individuals with disabilities, and families of deceased workers. Employers deduct 6.2% of employees’ gross wages and make their own FICA contribution to match this amount. Together, this totals 12.4% of an employee’s wages, up to the taxable maximum of $176,100 for 2025​.

The rules differ slightly for self-employed individuals. Since they function as both employer and employee, they must pay the entire 12.4% themselves. However, they can deduct half of this on their federal income tax return to reduce the financial impact.

Self-employed workers typically calculate and pay OASDI tax quarterly to stay on top of their obligations. Employers and individuals must keep accurate payroll deduction records to ensure compliance.

Is OASDI tax mandatory?

The OASDI tax is mandatory for most employees, employers, and self-employed individuals in the United States. FICA  mandates OASDI taxes for employees and employers, whereas the Self-Employment Contributions Act (SECA) governs self-employed people. These contributions ensure continued funding for Social Security benefits.

There are several exceptions to the OASDI tax requirement:

• Religious groups: Certain religious organizations and clergy members can opt out of paying Social Security taxes if they file Form 4029 and are approved by the IRS. This decision also waives their eligibility for future Social Security benefits.
• Self-employed individuals with minimal earnings: Anyone earning less than $400 annually is not required to pay OASDI tax​.
• State and local government employees: Public employees covered by alternative pension plans that meet specific criteria may be exempt from Social Security tax​.
• Nonresidents and visa holders: Some nonresidents and visa holders, such as international students or researchers working in the U.S. under specific visas, may also qualify for exemptions.

Research whether you and your team members are subject to OASDI tax to ensure you comply with payroll tax requirements. Employers also have broader payroll tax responsibilities, including unemployment taxes.

What are OASDI eligibility requirements and benefits?

Eligibility for OASDI benefits depends on accumulating “work credits” through covered employment. The Social Security Administration (SSA) sets a specific threshold for workers to earn credits based on their annual earnings. In 2025, one credit is earned for every $1,810 of covered wages, with a maximum of four credits achievable each year.

To qualify for benefits, workers need at least 40 credits, equivalent to about 10 years of work. Although the number of credits determines eligibility, the actual benefit amount depends on the worker’s average earnings over 35 years.

Types of OASDI benefits and eligibility

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Why accurate payroll tracking matters for OASDI benefits

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Accurate tracking of payroll contributions, including Social Security taxes, Medicare taxes, and unemployment contributions, ensures compliance and eligibility for Social Security benefits. Employers must accurately withhold and report OASDI contributions, allowing employees to earn the required work credits for retirement, disability, or survivor benefits. Inaccurate or missing contributions may result in delays in benefits or disqualification of workers.

Tracking is especially important for global employers managing payroll across multiple regions, where local tax laws and requirements can add complexity. A well-structured approach to payroll compliance includes explicit handling of pre-tax and post-tax deductions to minimize errors and protect workers’ eligibility for OASDI. Employers navigating compliance across borders should understand distinctions like payroll tax versus income tax to guarantee they meet obligations.

What happens with OASDI taxes for nonresidents?

The OASDI tax generally applies to all workers in the United States, including nonresident citizens working under certain conditions. However, there are exceptions for individuals on specific visa types, as their employment circumstances often exempt them from contributing to Social Security taxes. Here’s a brief overview of some common visa categories exempt from OASDI tax:

• A-Visas: Issued to international government employees and their families, these visas exempt individuals from OASDI taxes as they work in official diplomatic or consular roles.
• D-Visas: Designed for crew members of foreign ships or aircraft operating within the U.S., these workers are generally exempt from OASDI as international agreements govern their employment.
• F-Visas: These student visas are for individuals pursuing academic studies in the U.S. Students often qualify for exemptions from OASDI taxes during their authorized study period.
• G-Visas: Holders of G-visas are employees of international organizations, such as the United Nations, and are not required to pay OASDI taxes while performing their official duties.
• H-Visas: Certain nonimmigrant workers, including agricultural laborers or professionals working temporarily in the U.S., may also qualify for exemptions depending on specific employment agreements​.

Understanding when taxes are owed is particularly important for managers dealing with international employees or remote workers.

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Learn more about how Oyster can support your global compliance needs.

FAQs

When are OASDI taxes due for employers?

Employers are generally required to deposit OASDI and other payroll taxes monthly or biweekly, depending on their payroll size. Additionally, employers must file Form 941, the Employer’s Quarterly Federal Tax Return, to report these taxes. Small employers with an annual tax liability of $1,000 or less may file annually using Form 944.

What penalties apply if an employer fails to pay OASDI taxes?

Failure to pay OASDI taxes can result in significant penalties, including monetary fines and legal action. The IRS may assess penalties for late payments or inaccuracies and, in severe cases, place a lien on the employer’s assets or pursue criminal charges. 

How do employers report OASDI taxes?

Employers report OASDI taxes on Form 941, which details the total taxes withheld from employees’ paychecks and the employer’s matching contributions. 

Are bonuses or commissions subject to OASDI tax?

‍Bonuses and commissions are subject to OASDI tax. They are added to an employee’s total annual earnings, and that employee is taxed on all income below the taxable maximum ($176,100 for 2025). If the employee’s wages exceed this threshold, OASDI tax is not applied to the portion above the limit​.