The OASDI federal tax is a payroll tax funding Social Security retirement benefits, automatically withheld from employee wages under the Federal Insurance Contributions Act (FICA).
OASDI stands for Old-Age, Survivors, and Disability Insurance. The tax rate is 6.2% for employees and employers each, totaling 12.4%. The 2024 wage base limit is $168,600, meaning only earnings up to this amount are taxed.
For example, an employee earning $100,000 annually would pay $6,200 in OASDI tax ($100,000 × 6.2%). Their employer would match this amount.
| Tax Type | Rate | Wage Base Limit (2024) |
|---|---|---|
| OASDI | 6.2% | $168,600 |
| Medicare | 1.45% | No limit |
| Additional Medicare | 0.9% | No limit |
The OASDI tax funds Social Security benefits, including retirement, survivor, and disability benefits. The Social Security Administration manages these funds, distributing them to eligible recipients.
Contrary to popular belief, the OASDI tax does not fund Medicare. Medicare is funded separately through another FICA tax.
Many confuse the OASDI tax with the federal gift tax. Unlike the gift tax, which applies to transfers of property, the OASDI tax is a mandatory payroll deduction for employees and employers.
Another misconception is that the OASDI tax applies to all income. In reality, it only applies to earned income up to the annual wage base limit.
When I reviewed my paystub last month, I noticed the OASDI tax deduction listed. For my salary of $85,000, the deduction was $5,270 ($85,000 × 6.2%). This amount, along with my employer's contribution, goes directly to the Social Security trust fund.
Understanding this breakdown helped me appreciate how payroll taxes contribute to national social insurance programs.