What Is OASDI Tax? Social Security Tax Explained

An employee looks at their pay stub, sees “OASDI” taking a chunk out of their paycheck, and has no idea what it stands for. It’s one of the most common payroll line items nobody explains.

Here’s what OASDI tax actually is, who pays it, and how the wage base cap works.

What Is OASDI Tax?

OASDI stands for Old-Age, Survivors, and Disability Insurance. It’s the formal name for the Social Security tax, and it’s one of the two taxes that make up FICA, the Federal Insurance Contributions Act, alongside Medicare tax. When a pay stub shows “OASDI” instead of “Social Security,” it’s referring to the exact same withholding.

The tax funds Social Security retirement benefits, survivor benefits paid to family members of deceased workers, and disability benefits for workers who can no longer work due to a qualifying disability, which is where the full name comes from.

Who Pays OASDI Tax and at What Rate?

OASDI is split evenly between employee and employer. Employees have 6.2% of eligible wages withheld from each paycheck, and employers pay a matching 6.2% on top, for a combined rate of 12.4%. Self-employed workers pay both halves themselves through self-employment tax, since there’s no separate employer to split the cost with.

The OASDI Wage Base Cap

Unlike Medicare tax, which applies to all wages with no ceiling, OASDI tax only applies up to an annual wage base limit set by the Social Security Administration each year. Once an employee’s year-to-date wages cross that threshold, OASDI withholding stops for the rest of the calendar year, which is why a high earner’s paycheck sometimes gets noticeably larger partway through the year.

The wage base resets to zero every January 1, so withholding starts again from the first dollar earned in the new year, even for employees who hit the cap the previous year. This reset is a common source of confusion for both employees and payroll teams processing the first few pay periods of a new year.

OASDI vs. Medicare Tax

OASDI and Medicare tax together make up FICA, but they work differently. OASDI is capped at the annual wage base and funds retirement, survivor, and disability benefits. Medicare tax has no wage cap at all, applies to every dollar earned, and funds hospital insurance benefits. High earners also pay an additional 0.9% Medicare surtax above a certain income threshold, a rule that has no OASDI equivalent.

Why This Matters for Payroll Accuracy

Getting OASDI withholding wrong, especially around the wage base cap and the calendar year reset, creates real reconciliation problems: over-withheld employees are owed a refund through their tax return, and under-withheld employers can face penalties for failing to remit the correct match. This is especially relevant for employers managing employees who change jobs mid-year or who cross the wage base threshold partway through a pay period.

Netchex tracks OASDI withholding and the annual wage base automatically, so the cap applies correctly without payroll teams manually monitoring year-to-date totals for every employee.

Frequently Asked Questions

This guide reflects publicly available product information and independent reviewer data (G2, Capterra, Trustpilot, Yelp, Better Business Bureau, Reddit, Software Advice, GetApp) as of 2026. Feature availability and pricing may vary by plan. Contact each provider for current details.

Disclaimer: Any product roadmap or future plans provided herein are for informational purposes only. They do not represent a commitment to deliver any material, code, feature, or functionality. Plans may change without notification. The development, release and timing of any features or functionality described remain at the sole discretion of Netchex, its affiliates, and partners. Netchex does not give legal, tax, or accounting advice. You are responsible for ensuring your use of Netchex product meets your individual business and compliance requirements.

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