OASDI tax is mandatory for most workers, but some groups are exempt or pay into different systems

OASDI tax (Old-Age, Survivors, and Disability Insurance) is the Social Security portion of the payroll tax. For most people who work, yes — it is mandatory. Your employer withholds it from your paycheck at 6.2 percent of your wages, and your employer pays an equal 6.2 percent. If you are self-employed, you pay both portions yourself: 12.4 percent total.

But "most people" is not everyone. Certain workers pay into different retirement systems instead, and a small number of groups are fully exempt. The rules depend on what kind of work you do and who employs you.

Key Takeaways

  • OASDI tax is withheld automatically from paychecks at 6.2 percent for employees and 12.4 percent for self-employed workers, and you cannot opt out if you are covered.
  • Federal employees hired before 1984, railroad workers, and some state and local government workers pay into separate pension systems instead of OASDI.
  • Nonresident aliens on certain visas, some religious groups, and a few other narrow categories do not pay OASDI tax.
  • If you work for an employer that does not withhold OASDI, you still owe it as self-employment tax when you file your tax return.

Who does not pay OASDI tax

Federal employees hired before January 1, 1984 are covered by the Civil Service Retirement System (CSRS), not OASDI. They do not pay Social Security tax. Federal employees hired on or after that date pay OASDI like other workers.

Railroad workers covered by the Railroad Retirement Act pay into a separate system run by the Railroad Retirement Board. They do not pay OASDI tax, though the railroad system is designed to coordinate with Social Security.

Some state and local government employees are not covered by Social Security. They work under their own pension systems. This varies by state and by employer — a teacher in one state might pay OASDI while a teacher in another does not. You can check your pay stub or ask your payroll office whether OASDI is being withheld.

Nonresident aliens on certain visa categories (F-1 students, J-1 exchange visitors, M-1 vocational students, and Q-1 cultural exchange visitors) are exempt while in that status. Once you change visa status or become a resident alien, the exemption ends and OASDI becomes mandatory.

Religious groups with exemptions

Members of certain religious groups that oppose insurance and rely on mutual aid can request exemption from both OASDI and Medicare taxes. This applies to members of recognized sects or divisions of sects, primarily Amish and Mennonite communities, though other groups may may have access to.

To claim this exemption, you must file Form 4029 (Application for Exemption From Self-Employment Tax for Use by Members of Certain Religious Groups) with the IRS. You must be a member of the group before a certain date (usually before you turned 18), and the group must have made reasonable provision for its dependent members. Once approved, the exemption is permanent unless you revoke it.

If you work for an employer and are part of an exempt group, your employer still withholds OASDI unless you provide them with proof of your exemption status. The burden is on you to inform your employer and provide documentation.

What happens if your employer does not withhold OASDI

If you work for an employer that does not withhold OASDI tax — whether because they are exempt, you are exempt, or they simply fail to do it — you are still responsible for paying it. Self-employment tax is calculated on your tax return and paid when you file.

If your employer should have withheld but did not, you can contact the IRS or your state tax authority to report it. The employer may face penalties, but you are not off the hook for the tax itself. You will owe it plus any interest and penalties that accrue.

Self-employed workers and OASDI

If you are self-employed, OASDI is not withheld from a paycheck because there is no paycheck. Instead, you calculate self-employment tax on Schedule SE (Self-Employment Tax) and pay it with your federal tax return. The rate is 12.4 percent on net self-employment income up to the annual wage base (which changes each year).

You cannot avoid self-employment tax by calling yourself an independent contractor or by not reporting income. The IRS uses income reported on your tax return to calculate what you owe. If you underreport income, you underreport your tax liability and face penalties if audited.

Self-employed workers do get a deduction: you can deduct half of your self-employment tax from your gross income when calculating your adjusted gross income. This reduces your overall tax burden slightly, but it does not eliminate the OASDI tax itself.

Wage base limits and how much you pay

OASDI tax applies only to wages up to an annual limit called the wage base. In 2024, that limit is $168,600. Once you earn more than that in a year, no additional OASDI tax is withheld on the extra income. Medicare tax (the other part of payroll tax) has no wage base and continues on all earnings.

This means high earners pay a smaller percentage of their total income in OASDI tax than lower earners do. A person earning $200,000 pays OASDI tax on only $168,600 of it. A person earning $50,000 pays on all $50,000.

The wage base changes each year based on average wage growth. You can check the current year's limit on the Social Security Administration website or your pay stub.

Frequently Asked Questions

Can I opt out of OASDI if I do not want it?

No. If you are covered by OASDI, you cannot opt out. The only exceptions are the narrow groups listed above: certain federal employees, railroad workers, some state and local government workers, nonresident aliens on specific visas, and members of exempt religious groups. For everyone else, OASDI is mandatory.

What if I work for multiple employers in one year?

Each employer withholds OASDI on your wages up to the annual wage base. If you earn over the wage base at one job, then switch to another job, the second employer will still withhold OASDI. You may end up overpaying. When you file your tax return, you can claim a credit for excess OASDI tax withheld, and the IRS will refund the overpayment.

Do I pay OASDI on tips?

Yes. Tips are treated as wages for OASDI purposes. You must report all tips to your employer, and OASDI is withheld on them. If you receive cash tips you do not report, you are still legally responsible for paying OASDI tax on them when you file your return.

Is OASDI tax the same as Social Security?

OASDI is the payroll tax that funds Social Security. When you pay OASDI tax, you are building credits toward Social Security benefits. The terms are often used interchangeably, but OASDI is the tax and Social Security is the benefit program it funds.