What is OASDI Tax? Definition, Types, and History of Social Security Tax

Key Takeaways:

  • OASDI tax is a payroll tax imposed by the federal government to fund Social Security and Medicare.
  • The OASDI tax was first enacted in 1935 as part of President Franklin Roosevelt’s New Deal program and was set at 2%.
  • OASDI tax is automatically withheld from paychecks at a rate of 6.2% and employers also pay 6.2% for a total of 12.4%.


OASDI tax is a payroll tax imposed by the federal government to fund Social Security and Medicare. The tax is split between employers and employees, with each paying a 6.2% share for a total of 12.4%.

The employer’s share is fully deductible from corporate income taxes, while the employee’s share is not deductions (but IS subject to FICA withholding).

The OASDI tax was first enacted in 1935 as part of President Franklin Roosevelt’s New Deal program. The original rate was 2%, which applied to the first $3,000 of an individual’s wages. The tax has since been increased several times, with the current rate of 6.2% enacted in 1990.

The OASDI tax is imposed on all wages and salaries, regardless of whether they are earned from employment or self-employment.

For employees, the tax is deducted from their paycheck automatically through FICA withholding. For self-employed individuals, the tax is paid directly to the IRS via quarterly estimated payments or when filing their

What is OASDI?

OASDI Tax is the Old-Age, Survivors, and Disability Insurance tax, which is a U.S. tax levied on earned income to fund the Social Security program.

The OASDI Tax is designed to ensure workers have enough funds for retirement or in other situations such as disability or death when their earned income is no longer a source of cash flow.

Established in 1935, the OASDI Tax is designed to ensure workers have enough funds to support themselves in retirement or in other situations such as disability or death when earned income no longer exists as a source of cash flow.

Who Needs To Pay OASDI Tax?

OASDI tax is mandatory for all employers, employees, and people who are self-employed. You can’t opt out, even if you want to save for your retirement yourself. 

However, there are a few groups that are exempt from paying Social Security tax:

  • Members of some religious organizations
  • Self-employed individuals who earn less than $400 per year
  • Foreign researchers and academics who are neither U.S. citizens nor permanent residents (must fill out IRS Form 4029)

What Are the Types of OASDI Taxes?

1. Self-Employment Tax

The self-employment tax is a type of payroll tax that is paid by self-employed individuals. It is designed to cover both the employer and employee portions of the OASDI (Old-Age, Survivors, Disability Insurance) taxes that are normally paid by employers and employees through FICA taxes.

As of 2022, the SECA (Self-Employment Contributions Act) rate is 15.3% of net earnings, which equals the amount an employer and employee would jointly pay through FICA taxes.

OASDI taxes are paid by both traditional employees and self-employed individuals at a rate of 12.4%.

However, self-employed workers are permitted to deduct half of their SECA tax payments from their annual income taxes which brings it closer to 6.2%, similar to what employees pay for FICA taxes on earned income up to $147000 in 2022 (up from $132000 in 2021).

2. Social Security Tax

The Social Security tax is a payroll tax collected by the government that is known as FICA (Federal Insurance Contributions Act) and SECA (Self-Employed Contributions Act) taxes. It is used to fund payments to qualifying persons, such as retirees, disabled individuals, and family members of deceased beneficiaries.

There are two types of Social Security taxes: employee contributions and employer contributions. For employees, the current rate for social security in 2022 is 6.2% for the employee’s portion and 6.2% for the employer’s portion or 12.4% total; in 2023 it increases to 7%.

For self-employed individuals, there is a combined federal tax rate of 15 3% in 2022 and 16 2% in 2023 on income up to $147 000 annually after which no further OASDI taxes are required. Additionally, there is a cap on annual earnings subject to this tax at $147 000 annually which affects both employees AND employers.

3. Medicare Tax

Medicare Tax is a federal tax on employee wages and self-employment income. It is composed of two separate taxes: the old-age, survivors, and disability insurance (OASDI) taxes and the hospital insurance (HI) tax.

The OASDI taxes are collected at a rate of 6.2% on wages up to $128,400 in 2018, while the HI tax is collected at a rate of 1.45% on all wages without any limit.

Employers are responsible for withholding these taxes from an individual’s wages paid in excess of $200,000 in a calendar year without regard to filing status.

The purpose of Medicare Tax is to help fund Social Security benefits as well as Medicare programs like Part A (hospital insurance), Part B (medical insurance), Part D prescription drug coverage, etc.

By paying these additional Medicare Taxes on their wages or self-employment income, individuals are helping ensure that those who need medical care can get it while also ensuring that Social Security benefits remain available for future generations when they retire or become disabled.

4. OASDI Taxes

There are two types of OASDI taxes: the Social Security Tax and the Medicare Tax.

The Social Security Tax is a U.S. tax that is levied on your earned income to fund the Social Security program. It is a component of the Federal Insurance Contributions Act, along with Medicare, and is automatically deducted from your paycheck.

This tax usually gets deducted from the first $1 of earnings you get from your job and ranges between 6.2% and 12%, depending on whether you are an employee or self-employed.

The Medicare Tax is another federal tax that applies only to those who make more than $200,000 per year individually or $250,000 as a couple filing jointly in 2017 (with adjustments made for inflation each year after).

This tax helps pay for medical services provided by Medicare Part A (which covers hospital stays) and Part B (which covers doctor visits). The rate ranges between 1.45% – 2.35% based on income level as well as an additional .9% for those who make more than certain amounts annually

5. Medicare Taxes

Medicare taxes are federal taxes imposed on individuals, employers, and self-employed individuals to fund Medicare and Medicaid programs.

The Medicare tax rate is 1.45% for both the employer and employee. Employers are responsible for withholding the employee’s share of Medicare taxes from their wages and paying it directly to the IRS. The current Social Security tax rate is 6.2% for both the employer and employee, totaling 12.4%.

The Additional Medicare Tax applies to an individual’s wages that exceed $200,000 in a calendar year; employers must begin withholding this additional 0.9% from these wages without regard to filing status in the pay period they are paid in excess of $200K.

What Is the History of OASDI Taxes?

The initial taxable earnings threshold for OASDI was $3,000 in 1939. This threshold has been adjusted over time, with the most recent adjustment taking effect in 2018 when it was increased to $128,700.

The purpose of this threshold is to determine which workers are required to contribute to the OASDI fund through Social Security taxation on their income up to that limit.

In 1990, the OASDI tax was applied to self-employment income for the first time.

Prior to this, only employees who worked for traditional employers were required to pay the 6.2% Social Security tax on their earned income.

To help offset this added financial burden, self-employed workers are allowed to deduct half of their OASDI tax payments on their annual tax filings.

How Much Do You Pay in OASDI Taxes?

  • Workers will pay 6.2%, or the full 12.4% if self-employed, of their paycheck in OASDI taxes.
  • The maximum amount on which OASDI tax gets applied is $137,700 for 2020, meaning that you’ll pay the most in OASDI tax at this limit ($8,537.40).
  • If you work two different jobs whose total salaries add up to more than the $137,700 limit then employers may withhold too much OASDI tax which can be claimed back on your income tax return at the end of the year (e.g. through a refund).
  • To estimate how much you’ll pay into OASDI taxes in dollar amounts use calculators available online which can help with budgeting decisions related to these expenses.

How Is OASDI Tax Calculated?

Determine Your Taxable Income

Calculate your taxable income to determine how much OASDI tax you’ll have to pay. This includes your wages minus any deductions or exemptions you qualify for.

For example, if you are single and make $50,000 a year in 2019, subtract any applicable deductions (such as 401k contributions) to get an approximate figure of how much is being taxed.

Calculate the 6.2% OASDI Tax Rate

Next multiply the amount of taxable income by 6.2%, which is the percentage of OASDI tax that will be withheld from each paycheck up until 2022 when it increases to 12%.

For example, if the worker has a taxable income of $50,000 then 6% would be withheld from each check for Social Security and Medicare programs ($3200 per year).

Determine If Self-Employed Workers Need To Pay a Total 12.4% Rate

If self-employed then a total of 12.4 % needs to be paid ($4800 per year).

This can be claimed as a deduction on their taxes so they do not have double taxation since they are both employer and employee paying into Social Security funds on their own business profits.

How do I know if I am eligible for OASDI Tax deductions?

Check your paycheck stub to see if you are being deducted from OASDI tax.

If so, this means that you are eligible for Social Security benefits and will be able to receive a portion of your Primary Insurance Amount (PIA) when you apply for SSDI or retirement benefits.

To calculate how much OASDI tax is deducted from your wages each month, the SSA uses an average monthly income across your entire working life adjusted for historical wage growth to determine the PIA amount of 100%.

If you are not sure if you have worked jobs covered by Social Security in the past or if you do not meet the work credit requirements needed for eligibility, contact the Social Security Administration (SSA) directly for more information about what qualifies as “covered earnings” and how many work credits need to be earned in order to qualify for OASDI Tax deductions.


OASDI is a vital program for millions of Americans, providing them with income and financial security in retirement or in the event of disability.

The program is funded through payroll taxes, and while the tax may be a burden for some workers, it is also an important source of revenue for the government.

Understanding the different types of OASDI taxes and their history can help you make informed choices about your own participation in the program.


Do I get OASDI tax back?

You can claim excess OASDI tax back and there’s space on your tax return for a claim.

Is OASDI taken out of every paycheck?

OASDI tax is automatically withheld from paychecks at a rate of 6.2% and employers also pay 6.2% for a total of 12.4%

Is OASDI same as Social Security?

Yes, the OASDI program is the largest income-maintenance program in the US and most Americans know it as Social Security.

Is OASDI tax mandatory?

OASDI tax is mandatory for all employers, employees, and people who are self-employed. You can’t opt out, even if you want to save for your retirement yourself. 

What is the maximum amount of OASDI Tax that can be deducted from a paycheck?

The OASDI tax represents 6.2% of your earnings, or 12.4% if you’re self-employed. There’s a cap to how much of your earnings can be taxed, with the maximum taxable earnings for OASDI set at $147,000 for 2022 and $160,200 for 2023.

what is oasdi tax on my paycheck

It’s a mandatory tax by the Federal Government to fund Social Security and Medicare.

When did oasdi tax start?

OASDI tax was implemented in 1935 but deductions only started in 1937.

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Lorien is the Country Manager for Financer US and has a strong background in finance and digital marketing. She is a fintech enthusiast and a lover of all things digital.

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Last Updated: March 6, 2023

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