What is OASDI

The Old-Age, Survivors, and Disability Insurance (OASDI) program, often shorthanded as Social Security, is a federal initiative in the United States designed to provide financial assistance to retired individuals, disabled workers, and the surviving family members of deceased employees.

OASDI is financed via payroll taxes levied under the Federal Insurance Contributions Act (FICA) for employed workers and the Self-Employment Contributions Act (SECA) for self-employed individuals.

These are mandatory payroll deductions for all US resident workers. Contributions are either shared between employer and employee, or in the case of SECA payments, wholly covered by the self-employed person.

As described in their 2024 annual report, the Social Security Administration (SSA) paid out over $1.5 trillion to OASDI beneficiaries in the previous financial year.

What is the purpose of OASDI, and why is it important for HR professionals?

OASDI ensures income security by providing retirement, disability, and survivor benefits. HR professionals need to understand OASDI because it directly impacts payroll processing and compliance.

Businesses are required to pay OASDI taxes, meaning HR teams must:

• Ensure correct payroll deductions for employees
• Match employee contributions on behalf of the employer
• Accurately report OASDI taxes to the SSA

Failure to manage OASDI deductions responsibly can result in penalties, compliance risks, and employee dissatisfaction. If payments are missed, making them up with future, backdated payroll deductions can be an onerous and unpopular process.

How does OASDI relate to payroll taxes, and what percentage is deducted?

OASDI is a core component of payroll taxes in the US. The OASDI tax rate is 6.2% of an employee’s gross wages, with employees and employers each contributing 6.2%, bringing the total to 12.4%.

The tax applies only to the taxable maximum, which is adjusted annually. For 2025, the wage base limit is $176,100, meaning any earnings beyond this amount are not subject to OASDI taxes.

HR professionals should configure payroll systems to stop OASDI deductions once employees reach this threshold.

There is no minimum floor for eligible income—it is taxable under OASDI from dollar one.

Does OASDI apply to employees working outside the US?

OASDI applies to employees working for US companies, even if they are outside the country. However, totalization agreements between the US and certain countries may prevent double taxation for Social Security purposes.

HR teams must verify whether OASDI contributions are necessary for employees working abroad and ensure compliance with international agreements.

Individuals working for US companies who are not US residents and who pay taxes in their own country are not eligible for OASDI deductions.

Employer responsibilities for OASDI compliance

There are several mandatory requirements for employers regarding these taxes. Employers must:

• Deduct 6.2% from employees’ wages and match this contribution
• Cease deductions once earnings reach the taxable maximum
• Report and submit contributions to the IRS
• Provide accurate W-2 forms reflecting OASDI contributions

Employers who fail to comply with OASDI regulations may face penalties or audits from the SSA.

The W-2 form must be filed by all companies on behalf of all their employees earning $600 or more in any tax year. As well as social security deductions, the W-2 includes details of income tax and Medicare tax.

How does OASDI impact employees' take-home pay?

Employees will see deductions listed on their payslips for OASDI taxes. The purpose of these payments should be adequately explained to employees. HR and payroll teams should address this education gap, especially for younger workers in their first role.

Because OASDI deductions reduce an employee’s net pay, some employees may question why they are subject to OASDI taxes. HR professionals should explain that these contributions provide:

• Retirement benefits for financial stability after employment
• Disability insurance in case of serious illness or injury
• Survivor benefits for spouses or dependents of deceased workers

Providing clear payroll documentation during onboarding helps minimize confusion and ensures employees understand the value of OASDI.

What benefits do employees receive from OASDI contributions?

OASDI taxes offer peace of mind, acting as a kind of insurance against misfortune while paving the ground for the retirement phase of every employee’s career.

Three main benefits should be explained. Employees contributing to OASDI qualify for:

• Retirement benefits: Monthly Social Security payments upon reaching retirement age
• Disability benefits: Income for individuals unable to work due to disability
• Survivor benefits: Financial support for spouses, children, or dependents of deceased workers

HR teams should communicate these benefits to employees to highlight the program’s long-term value.

What happens if OASDI deductions are miscalculated?

Payroll errors in OASDI deductions can lead to:

• Underpayment, resulting in IRS penalties
• Overpayment, requiring payroll corrections or refunds

To prevent issues, HR teams should:

• Use automated payroll software for accurate calculations
• Keep payroll systems updated with wage base limits and tax rates
• Conduct periodic payroll audits

Deel’s payroll services can help automate payment calculations and help reassure employers and employees alike.

How does OASDI impact self-employed individuals?

Self-employed individuals do not have an employer to match contributions, so they must pay both the employee and employer share, totaling 12.4% of their net earnings. These contributions are managed under the Self-Employment Contributions Act (SECA).

HR professionals should ensure that independent contractors understand they are not subject to employer payroll deductions and must file and pay their own OASDI taxes. Employers, however, have no legal responsibility for self-employed contractors’ OASDI payments aside from making the contractor’s obligations clear.

However, employers must also report sums paid to independent contractors using the IRS 1099 Form.

Are there any exemptions from OASDI taxes?

Some individuals may qualify for OASDI tax exemptions, including:

• Non-resident aliens on certain visa types (e.g., F-1, J-1 students)
• Some state and local government employees enrolled in alternative retirement systems
• Members of recognized religious groups that opt out of Social Security (as a form of conscientious objection to such benefits)

HR professionals should verify exemption eligibility during onboarding and maintain documentation for compliance.

Key metrics and reports for OASDI compliance

To ensure compliance, HR teams should track the following:

• Employee earnings to stop deductions once reaching the taxable maximum
• OASDI withholding accuracy on payroll records
• W-2 reporting to ensure correct Social Security wages and taxes
• Payroll audit logs for compliance reviews

Automated payroll and HR systems, such as those provided by Deel PEO, ensure all the above metrics are captured and available to you as dashboards or reports. They will also pre-populate filing documentation.

Addressing employee questions about OASDI

Employees, particularly those new to the US’s social security systems, as well as younger employees, may struggle to understand OASDI deductions.

HR professionals can address such concerns by:

• Providing clear explanations of Social Security benefits
• Offering FAQs in onboarding materials
• Directing employees to the SSA for additional guidance

By educating employees on OASDI, HR teams help workers appreciate the long-term security these contributions provide.

See also these related articles on employers’ reporting requirements:

• Payroll Garnishment Rules
• State Unemployment Insurance Rates
• ACA Compliance Requirements
• PTO Payout Laws by State

For more insights on US payroll compliance, check out Deel’s guide to payroll tax laws.