If you look closely at a pay check stub or the statement that contains the information of a payroll check, you may notice an item or deduction item labeled “OASDI» and you will wonder what is OASDI? What does it mean?
Well, OASDI is the acronym in English for “Old Age, Survivors and Disability Insurance”. On a paycheck, OASDI refers to taxes that are collected on personal income. These withheld funds will be used to finance Social Security programs.
For payroll purposes, OASDI means a tax deducted from wages or salaries. One of the deductions forpayroll tax” in the United States which is stipulated by law.
It is part of the federal social security system, which is the responsibility of the Social Security Administration (SSA or Social Security Administration).
Sometimes payroll deduction OASDI can also be called FICA tax.
FICA It refers to the Federal Insurance Contributions Law, legislation that authorizes the federal government to collect this tax that finances the ssocial security in the US.
The OASDI better known as Social Security, provides benefits to tens of millions of people in the United States. The Official Blog of the Social Security Administration explains us what is FICA.
The OASDI program was created when President Franklin D. Roosevelt signed the Social Security Law on August 14, 1935.
Today, the Federal OASDI program provides monthly retirement benefits to those who reach full retirement age and assistance to surviving children of deceased workers.
The OASDI also provides benefits to people with disabilities who are unable to work and earn enough to live on.
Together, they qualify as programs that provide a comprehensive system of benefits for tens of millions of Americans.
As of 2018, the OASDI tax rate it was 6.2 percent of earned income before deductions are subtracted.
For example, if an employee’s gross salary reaches $1,000 per month, then $62 is deducted from their total paycheck for OASDI.
How do OASDI taxes work?
Funds withheld by the employer must be reported to the federal government. The state, through SSA manages said funds in two trusts:
The first corresponds to Old Age and Survivors Insurance Trust Fund (OASI or Old–Age and Survivors Insurance Trust Fund) for retirement and a second The Disability Insurance Trust Fund (DI or Disability Insurance Trust Fund) for disability.
Investopedia.com Provides further details about the operation of the Old Age, Survivors and Disability Insurance Program (OASDI).
It should be clarified that the FICA tax it does not apply to “unearned income” that is, income that is not derived from an employment relationship, such as interest and earnings on stock.
Remember that “earned income” means any wages, tips, and other employment payments that you receive.
The OASDI deduction only applies to the first $137,700 of your earned income per calendar year. Thus, in the event that your earnings reach that amount before September 30, you will not have to pay social security taxes on your additional wages until December 31.
How much is the tax rate for the OASDI Program?
SSA sets the tax rate from year to year the OASDI, Medicare, and Supplemental Security Income Program (SSI or Supplemental Security Income), although since 2018 the aliquot for the OASDI it has remained at 12.4 percent.
Of which, 6.2 percent is deducted from your paycheck and another 6.2 percent is covered by the employer as a work benefit.
In other words, for every dollar deducted for the OASDI Program, employers pay an equal amount.
Individuals who are self-employed or self-employed must contribute both the employee and employer portions. What this means is that the OASDI rate for self-employed workers is equal to 12.4 percent.
It is important that employees pay the tax of the OASDI Program, because the amount they contribute today determines the size of their future checks social security benefits.
There’s a annual limit on the amount of income that is subject to the OASDI tax and this limit may vary from year to year.
Called the salary base or annual taxable maximum, this limit was $128,400 as of 2018 and for 2020 it is $137,700. The taxable maximum is adjusted each year, based on changes in average wages.
In the official website of the Social Security Administration, Research and Statistics section you can see the maximum annual taxable income and the rate that apply for the OASDI program.
OASDI and Medicare
It is a separate program from the OSASDI, but supplements the cash benefits of federal coverage for old age and disability.
Like the OASDI, Medicare is financed with a payroll tax and with employer contributions.
The Medicare tax rate It has remained at 1.45 percent, under the same scheme: 1.45 percent is deducted from your payroll and another equivalent percentage is contributed by your employer as a benefit by law.
Unlike OASDI for Medicare there is no maximum amount of taxable earnings. 2.9 percent is taxed on all earned income.