OASDI tax is mandatory for most workers, but some groups are exempt

OASDI tax (Old-Age, Survivors, and Disability Insurance) is mandatory for most people who work in the United States. It is the Social Security portion of the payroll taxes withheld from your paycheck. However, certain workers and groups do not have to pay it, and understanding who falls into those categories matters for your tax planning.

The tax funds Social Security benefits — retirement, survivor, and disability payments. Your employer withholds it automatically unless you fall into a specific exemption. The rate is 6.2% of your wages up to an annual cap (the cap changes each year). Self-employed people pay 12.4% because they cover both the employee and employer portions.

Key Takeaways

  • OASDI tax is withheld automatically from most paychecks at 6.2% of wages, up to an annual earnings cap set by Social Security.
  • Certain religious groups, some government employees hired before 1984, and nonresident aliens may be exempt from paying OASDI tax.
  • Students employed by their school, some visa holders, and employees of certain nonprofit organizations may not owe OASDI tax on those specific wages.
  • Exemptions are narrow and require documentation; most workers cannot avoid OASDI tax even if they object to it philosophically.

Who is exempt from OASDI tax

Members of certain religious groups that oppose insurance and provide for their own members' welfare may be exempt. The group must be recognized by the Internal Revenue Service, and the individual must file Form 4029 with the IRS to claim the exemption. This is a narrow category and requires both group membership and individual approval.

Some federal employees hired before 1984 do not pay OASDI tax because they are covered under a different retirement system (the Civil Service Retirement System). Employees hired after 1983 pay OASDI tax like other workers. State and local government employees may also be exempt if they are covered by their own pension system, though many states have changed this in recent years.

Nonresident aliens on certain visa types — such as F-1 students, J-1 exchange visitors, and some H-1B workers — may not owe OASDI tax on wages earned in the United States, depending on their visa status and the terms of any tax treaty between the U.S. and their home country.

Students and school employment

A student employed by the school or college they attend does not pay OASDI tax on those wages. This exemption applies only to work performed for the educational institution itself, not to work at a restaurant or bookstore on campus that is not directly run by the school.

The exemption ends when the student is no longer enrolled as a full-time student or leaves the school. Once you work elsewhere or graduate, OASDI tax applies to your new job like any other worker.

Nonprofit and religious organization employees

Employees of certain nonprofit organizations may not pay OASDI tax if the organization has filed a waiver with the IRS and the employee has not been covered under Social Security. This is rare and applies mainly to organizations that existed before Social Security coverage was extended to nonprofits. Most nonprofit employees today pay OASDI tax normally.

Employees of churches and certain church-controlled organizations may be exempt if the organization has filed Form 8274 with the IRS. Like other religious exemptions, this requires both organizational and individual documentation.

What happens if you are exempt

If you are exempt from OASDI tax, you will not see the 6.2% withheld from your paycheck. However, you also will not earn Social Security credits toward retirement, survivor, or disability benefits. This is a permanent trade-off — you cannot later decide to pay in and claim benefits on those wages.

You should verify your exemption status with your employer's payroll department and keep records of any forms you filed (such as Form 4029). If you change jobs or your status changes, your exemption may not carry over to the new position.

Self-employed people and OASDI tax

Self-employed workers cannot be exempt from OASDI tax. You must pay the full 12.4% (both employee and employer portions) on your net self-employment income, up to the annual cap. This is reported on Schedule SE when you file your tax return.

The only exception is if you are self-employed and fall into one of the narrow categories above — for example, a member of an exempt religious group. Even then, you must file the appropriate exemption form with the IRS.

How to claim an exemption

If you believe you may have access to for an exemption, you must file the correct form with the IRS before the exemption takes effect. For religious groups, this is Form 4029. For church employees, it is Form 8274. For nonresident aliens, you may need to file Form W-4 with a notation of your visa status, or provide your employer with a copy of your visa documentation.

Your employer cannot grant an exemption on their own — the IRS must approve it. Contact your payroll department to find out which form applies to your situation, and submit it as soon as possible. Retroactive exemptions are difficult to obtain, so do not delay if you believe you may have access to.

Frequently Asked Questions

Can I opt out of OASDI tax if I do not want Social Security?

No. OASDI tax is mandatory for all workers except those in the narrow exemptions listed above. Personal objection to Social Security is not grounds for exemption. If you do not want to participate, you would need to fall into a recognized category such as membership in an exempt religious group.

What if my employer is not withholding OASDI tax from my paycheck?

Contact your payroll department when ready. If you are not exempt, your employer is required by law to withhold OASDI tax. If they are not doing so, you may owe the tax when you file your return, and your employer may face penalties. Verify that no exemption form was filed on your behalf without your knowledge.

Do I still get Social Security benefits if I was exempt from OASDI tax?

No. Years in which you did not pay OASDI tax do not count toward your Social Security benefit. If you were exempt for your entire working life, you would not be may have access to to retirement, survivor, or disability benefits based on your own earnings. This is why exemptions are a significant decision.

Can my exemption status change if I change jobs?

Yes. An exemption tied to your employer (such as working for a specific school or nonprofit) ends when you leave that job. An exemption based on your personal status (such as religious group membership) may carry over, but you should inform your new employer and provide documentation to may support they do not withhold OASDI tax incorrectly.

What is the annual OASDI tax cap, and does it change?

The cap on wages subject to OASDI tax changes each year based on average wage growth. Once your earnings reach the cap in a calendar year, no more OASDI tax is withheld for the rest of that year. You can find the current year's cap on the Social Security Administration website or ask your payroll department.