Commonly referred to as Social Security, Old-Age, Survivors, and Disability Insurance (OASDI) is a federal program designed to provide financial benefits to retired individuals, survivors of deceased workers, and individuals with disabilities. Employees pay into this fund through payroll taxes, which are collected under the Federal Insurance Contributions Act (FICA). Employers also contribute an equal amount on behalf of their employees.
Read on to learn more about OASDI taxes.
What is the OASDI Tax Rate for 2025?
The OASDI tax rate has for the most part remained steady for 30+ years, at 6.2% of gross wages for employees and a matching 6.2% for employers — with outlier years when the rate was reduced in 2011 and 2012. In 2025, the rate remains at 6.2% each for employees and employers. Self-employed individuals pay the full 12.4%. The consistency of this rate helps maintain the Social Security fund’s stability.
What is the OASDI Limit for 2025?
What does vary year to year is the taxable maximum for OASDI. The OASDI taxable maximum is set at $176,100 for 2025, meaning employees won’t pay OASDI taxes on any income earned above that limit. As a result, employees will contribute a maximum of $10,918.20 to Social Security, and self-employed individuals will contribute a maximum of $21,836.40.
What Are the Responsibilities of Employers Regarding OASDI Tax?
Employers play a key role in managing OASDI taxes. They are responsible for withholding 6.2% of each employee’s gross wages for Social Security and matching this contribution with an additional 6.2% from the company’s funds.
Because 6.2% is taken from the employee’s wages, this reduces their take home pay. Employees may perceive their overall compensation as lower when considering the impact of payroll taxes, including OASDI. This can lead to dissatisfaction or feelings of being underpaid.
Since OASDI benefits are a crucial component of many employees’ retirement plans, HR can combat that perception by educating employees about their benefits and helping them understand how Social Security can supplement their retirement income in the future. To educate employees, HR leaders should:
- Clearly communicate the impact of OASDI taxes on employees’ paychecks, explaining how the deductions are calculated.
- Provide information about the different types of Social Security benefits available, including retirement, disability, and survivor benefits.
- Help employees understand how Social Security can fit into their overall retirement strategy. Offer tools and resources to assist with retirement planning, such as retirement calculators and workshops.
- Be available to answer employees’ questions about OASDI taxes and benefits. Offer guidance and support to help employees make informed decisions about their financial future.
Employers must also report OASDI contributions on employee W-2 forms and remit these taxes regularly to the IRS, typically alongside Medicare taxes under FICA. Additionally, employers need to stay informed about any changes to the OASDI taxable wage base, ensuring they adjust withholding accurately to comply with annual limits.
Frequently Asked Questions
Read on for some frequently asked questions related to OASDI taxes.
How Does Early Retirement Affect OASDI Benefits?
Taking early retirement can reduce an employee’s OASDI benefits. If they retire before full retirement age, their monthly benefits will be permanently reduced based on how many months they receive benefits early.
Can OASDI Tax Be Refunded?
Yes, OASDI tax can be refunded if someone overpaid due to factors like working for multiple employers or if their income exceeds the annual limit.
Who is Responsible for OASDI Tax Withholding?
Employers are responsible for withholding the 6.2% OASDI tax from employees’ gross wages and matching it with an additional 6.2% from company funds. They must remit these taxes to the IRS, along with Medicare contributions under FICA, and report them on employee W-2 forms.
How Paycor Helps
Paycor Payroll Software streamlines payroll runs, ensuring accurate withholdings and tax compliance. Backed by solid tax and compliance expertise, the software provides peace of mind, as in-product compliance updates notify you of any key changes.
With AutoRun, administrators can schedule payroll to process on a specific day and time without having to log in. At tax time, the platform handles W-2 and 1099 processing, in addition to the required tax filings.
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