Key Takeaways
- OASDI = Social Security. It funds retirement, disability, and survivor benefits through payroll taxes.
- Shared responsibility. Employees pay 6.2% of wages (up to the annual cap) and employers match it. Self-employed workers cover the full 12.4%.
- Wage base matters. In 2025, only the first $176,100 of wages is taxed. Earnings above that are exempt from OASDI.
- Compliance is critical. Employers must withhold, match, and file OASDI correctly (Forms 941, W-2, EFTPS). Errors can lead to penalties, back taxes, and audits.
- Global companies face extra hurdles. Hiring U.S. employees requires a U.S. entity, understanding tax treaties, correct worker classification, and payroll infrastructure.
- OASDI vs. Medicare. Both are payroll taxes, but OASDI covers financial security (retirement, disability, survivors), while Medicare funds healthcare.
- Rates stay stable, but caps change annually. Keep updated each year to avoid miscalculations.
- Teamed simplifies compliance. Automated calculations, filings, and expert guidance remove payroll stress for international employers.
Introduction
Think of a situation where you have recently welcomed your very first U.S. employee to the growing team of your company. You’re excited, the paperwork looks manageable, and then you hit the payroll section. And then suddenly, you come across words like OASDI, FICA, and Medicare. At this point, you’re not the only one feeling confused.
With remote work becoming more common in 2025, around 40% of U.S. jobs now offer some kind of work-from-home flexibility, and more global companies are hiring American employees than ever before. And with that comes the need to understand U.S. payroll taxes.
Among all the acronyms, OASDI is one you can’t afford to misunderstand. It’s not only one of the most common payroll taxes but also one with serious compliance requirements. This means, if you skip it or miscalculate, penalties and headaches follow. But don't worry, as the OASDI tax is simple to understand and work with.
At Teamed, we specialise in helping international companies handle payroll correctly. This blog will walk you through OASDI from top to bottom. So, let's get into it.
What Does OASDI Tax Stand For and What Does It Cover?
The abbreviation OASDI has its full form, which is Old-Age, Survivors, and Disability Insurance. Although many only know that it's social security.
In layman's terms, it is a federal program that gets its funding through payroll taxes and helps provide financial security to millions of Americans. For more details, employers can review official guidance from the Social Security Administration’s Employer Page.
Here’s what all OASDI tax covers:
- Retirement (Old-Age) Benefits: If you’ve worked and paid Social Security taxes for at least 10 years (earning 40 work credits i.e. up to 4 per year based on your earnings), you may qualify for monthly retirement benefits. You can start receiving them as early as age 62, though claiming before your full retirement age (66–67, depending on birth year) means a reduced monthly amount. The actual benefit depends on both your lifetime earnings and the age you begin claiming.
- Survivor Benefits: If a worker passes away, their spouse, children, or even old parents may be eligible for financial help.
- Disability Benefits: If someone can’t continue working because of a serious disability, Social Security provides income to help them manage.
You can think of it as a safety net. Current employees and employers contribute today, and those funds go toward supporting people already drawing benefits. In turn, today’s contributors will be supported later when they qualify.
Unlike Medicare, which is a separate program for healthcare, OASDI is focused on financial security. On employee pay stubs, you’ll usually see it listed under “Social Security” deductions.
Who Has to Pay the OASDI Tax?
One of the defining features of OASDI is that the responsibility doesn’t rest on just one party, but it is split between employer and employee.
- Employees: They pay 6.2% of their wages (up to an annual limit) toward OASDI.
- Employers: They match that with an additional 6.2%.
- Self-Employed Individuals: They pay the full 12.4% themselves since they’re both employer and employee.
Here’s a deeper look at how it works in different scenarios:
Scenario 1: Regular Employees
Whether someone is full-time, part-time, or even temporary, their paychecks will automatically have 6.2% (up to an annual limit) withheld for OASDI.
Scenario 2: Employers
You can’t shift your share to the employee. By law, employers must match contributions dollar for dollar and send both payments to the federal government.
Scenario 3: Self-Employed Workers
If you’re running a business solo, you’ll pay the entire 12.4% as part of self-employment tax. The good news is you can deduct half of it when filing income taxes, which helps soften the blow.
Scenario 4: International Employees in the U.S.
If a foreign worker has valid U.S. work authorisation (say, an H-1B visa or a green card), they’ll typically pay OASDI like everyone else. Certain treaties may create exceptions, but most international employees contribute.
For global businesses, this is where payroll providers like Teamed make life easier—we ensure contributions are correctly calculated for both U.S. and international hires.
The IRS also explains these responsibilities in detail in Publication 15, Employer’s Tax Guide.
How Is the OASDI Tax Calculated?
Calculating OASDI tax is not a big deal. Basically, both the employee and the employer contribute 6.2% of wages. Together, this makes 12.4% going into Social Security.
But there’s one important detail, the wage base limit. OASDI tax only applies to earnings up to a certain annual cap. For 2025, that cap is $176,100.
So, if your income goes above that amount, no more OASDI tax is withheld for the rest of the year.
The following example will help you understand better:
- Mid-Level Income Example
Say an employee earns $50,000 in 2025. They’ll have $3,100 taken out for OASDI during the year. Their employer also chips in the same amount, so together, $6,200 goes toward Social Security.
- High Earner Example
Now imagine someone making $200,000. Since OASDI only applies up to the wage cap of $176,100, they’ll pay $10,918.20 in taxes. Their employer matches that, but the extra $23,900 they earn above the cap isn’t taxed for OASDI.
For payroll teams, this wage cap is something to keep a close eye on. Many payroll systems automatically stop OASDI deductions once the limit is hit, but not all do.
Every year, the Social Security Administration alters the base limit for wages just to manage the increasing wages. For instance, in 2025, the cap increased by $7,500 compared to 2024.
What OASDI Means for Global Companies Hiring in the U.S.
For companies based outside the U.S., payroll can feel like a maze. OASDI compliance is just one piece of the puzzle—but it’s a critical one.
Here are a few things international employers need to keep in mind:
- U.S. Entity Setup
To hire American workers directly, you usually need a registered U.S. entity. That entity is responsible for payroll taxes, including OASDI.
- Tax Treaty Rules
Many countries maintain totalisation agreements with the U.S. This eventually prevents double taxation. Without one, a worker might have to pay into both locations.
- Worker Classification
Knowing the difference between an employee and a contractor is necessary. Employees must have OASDI withheld, while contractors handle their own self-employment taxes. By any chance, if you have any confusion, you own the risk of penalties.
- State-Specific Payroll
OASDI is federal, but states add another layer like income taxes, unemployment insurance, workers’ comp, and so on. Every state has its own set of rules.
- Payment Logistics
Since OASDI must be paid in U.S. dollars through U.S. banks, international employers need the right infrastructure to manage payments.
How Do You Report and File OASDI Tax Payments?
Collecting OASDI is only step one. Employers also need to report and file payments correctly. Here's how the reporting and filing tasks work.
- Form 941: Filed every quarter. It shows total wages, how much OASDI tax was withheld from employees, and the employer’s share. The deadline is the last day of the month after the quarter ends.
- Tax deposits: Payments go through the EFTPS system. Your schedule (monthly or semi-weekly) depends on how much payroll tax you’ve owed in the past.
- Form W-2: Given to employees by January 31 each year. It shows their total wages and OASDI withheld. A copy also goes to the Social Security Administration.
- Recordkeeping: Employers need to hold onto payroll records, including OASDI details, for at least four years.
How Can Teamed Help You Manage U.S. Payroll Taxes like OASDI?
If you own an international business, taking care of U.S. payroll can feel challenging and you might end up making mistakes. But that’s why Teamed exists.
- We automatically calculate OASDI deductions, track wage base limits, and ensure contributions stop when they should.
- We take care of all the deposits and filings for you, so you don’t have to worry about missing deadlines.
- When tax rules change like the wage cap increasing from 2024 to 2025, our system updates automatically, keeping you compliant without any extra effort.
- Plus, you’ll get clear reporting, secure record storage, and an employee self-service portal where your team can easily access their pay stubs and tax forms anytime.
- Last but not least, experts at Teamed are always available to answer questions, whether it’s about totalisation agreements, visa workers, or tricky state rules.
Ultimately, we remove the stress from U.S. payroll so you can focus on building your business.
FAQs
Q: Do international remote employees pay OASDI?
Usually no. If they work outside the U.S. and are employed by a non-U.S. entity, they’re not subject to OASDI. Different rules may apply if a U.S. entity employs them.
Q: What if I miscalculate?
Underpayments mean penalties and interest. Overpayments can usually be refunded or applied to future liabilities. Keeping clean payroll records helps catch errors fast.
Q: How often do OASDI rates change?
The 6.2% tax rate is fairly stable. The wage base limit, however, adjusts every year to reflect wage growth. The new limit is typically announced each October for the following year.
Q: Can employees opt out of OASDI?
For almost everyone, the answer is no. Only very limited groups, like certain religious workers or some student employees, may qualify for exemptions.
