OASDI Tax: How Contributions Differ for Employers & the Self Employed

You’re probably familiar with Social Security or Medicare — even if you’re not clear on the specifics, you’ve likely heard the terms once or twice. Now, can you say the same thing about OASDI, or Old Age, Survivors, and Disability Insurance? If not, we can help.

What Is OASDI Tax?

OASDI is an acronym standing for Old Age, Survivors, and Disability Insurance. The OASDI tax funds a large portion of a program you’ve probably already heard about: Social Security.

The money that employers collect from employee paychecks for the purposes of the OASDI tax actually goes toward funding the Social Security program. The OASDI program limits the amount of earnings that are subject to taxation annually. This amount changes each year — the annual OASDI limit for 2024 is $168,600.

Employers, employees, and those who are self-employed all contribute to OASDI through payroll taxes. To go more in-depth, we’ll go over what your contributions to OASDI cover.

What Does the OASDI Tax Cover?

1. Financial support in old age. Once qualified contributors reach retirement age, they’ll receive monthly benefits to replace a portion of their income in retirement.

2. Survivors benefits. Survivors benefit amounts are based on the earnings of the deceased relative. The more the deceased relative paid into Social Security, the higher the survivors benefit would be. The monthly benefit amount is a percentage of the deceased’s basic Social Security benefit.

3. Lump-sum death payment. A surviving spouse or child may also be eligible to receive a lump-sum payment of $255 if they meet specific requirements.

4. Disability benefits. The Social Security Disability Insurance (SSDI) program provides benefits to qualifying contributors and their family members. The Supplemental Security Income (SSI) program provides benefits to qualifying adults and their children.

Is the OASDI Tax Mandatory?

OASDI is federally mandated and, for the most part, all workers must contribute. Only a few exceptions exist to this rule. Members of some religious groups may be exempt from Social Security taxes, but in their case, they must waive their rights to benefits in order to become exempt.

FICA, SECA, & OASDI Contributions

Because the OASDI tax is taken directly from payroll contributions, it can vary how much is paid by employees, employers, and self-employed workers. There are two ways in which people are required to contribute to OASDI — either through the Federal Insurance Contributions Act (FICA) or the Self-Employment Contributions Act (SECA).

The OASDI tax funds a large portion of a program you’ve probably already heard about: Social Security.

Employee & Employer Contributions

Employers and employees contribute through FICA, which taxes both parties — employers and employees — to contribute to Social Security and Medicare (aka the FICA tax).

Employers pay matching contributions to the percentage of income that employees pay on a monthly basis. For 2024, the OASDI tax rate is set at 6.2% of net earnings for Social Security coverage and 1.45% for Medicare coverage (a total of 7.65%).

Self-employed Contributions

Those who are self-employed have to pay for both sides of the OASDI contributions — essentially matching their own contributions. Instead of paying through FICA tax, those who are self-employed pay through SECA, also known as the Self-Employment Contributions Act.

This means that, if you have a company classified as an S-Corp, Sole Proprietorship, or Partnership, you pay for OASDI through SECA. As of 2024, the SECA tax rate is 15.3% of net earnings, which equals the amount an employer and employee would jointly pay through FICA.

Those who are self-employed have to pay for both sides of the OASDI contributions — essentially matching their own contributions.

If you’re a self-employed worker and you’re worried about paying disproportionate taxes compared to an employee, fear not — there’s a way to relieve the burden. Because self-employment tax is deductible as a business expense, half of the SECA tax can be deducted from income tax.

You can do this on the Form 1040 Self-Employment tax form on Line 6.

OASDI Contribution Limits for 2024

As of 2024, the maximum amount of income taxed for Social Security topped out at $168,600. That means the maximum any person can pay towards Social Security in 2024 is $10,453.20 (6.2% of the maximum income of $168,600).

However, the Medicare tax rate has a different limit. Employees are taxed 1.45% on their first $200,000, then 2.35% for anything beyond $200,000 ($250,000 for joint returns; $125,000 for married taxpayers filing a separate return).

All wages in excess of $200,000 will be taxed at 2.35% ($250,000 for joint returns; $125,000 for married taxpayers filing a separate return).

Again, if you’re self-employed, those rates will approximately double to cover both employer and employee coverage, although you can write half of those costs off on your yearly Form IRS 1040.

Because self-employment tax is deductible as a business expense, half of the SECA tax can be deducted from income tax.

Those who file as self-employed are taxed at 2.90% Medicare tax on the first $200,000 of self-employment income, and 3.8% (2.90% regular Medicare tax + 0.9% additional Medicare tax) on all self-employment income in excess of $200,000. As with employers and employees, these limits change to $250,000 of combined self-employment income if filed as a joint return, and $125,000 for married taxpayers filing a separate return.

How Justworks Can Help

While the OASDI tax is important to understand and comply with, it can be tough to manage the nitty-gritty of payroll compliance. If you’re ready for some help in tackling payroll compliance for your business, check out more about Justworks’ Payroll and Compliance support — we’ve got your back.