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What is the OASDI tax?

If you’re here, chances are you’ve come across an OASDI tax deduction on your paycheck and are wondering what it is. Also, considering that there may be many other deductions that significantly reduce your earnings, is OASDI important and why?

What is the OASDI tax?

OASDI, commonly known as social security or medicare, stands for Old-Age, Survivors, and Disability Insurance. Workers are expected to contribute to it regularly. Your contribution guarantees you; Monthly benefits to replace your income once you retire. Payments sometimes start at age 62. However, for people born after 1960, the retirement age is 67. However, people can choose to start collecting their benefits later. People who start collecting after age 70 may have higher benefits because of the delay.

  • In the event of your death, your survivors will receive lump-sum income support to handle expenses. Survivors include spouses or children.
  • You purchase disability insurance when necessary and are eligible for vocational rehabilitation services.
  • Combined with hospital health insurance trust funds, you can access health care services such as inpatient hospital care and home health care.

A brief history of the OASDI tax

In 1935, President Franklin D. Roosevelt gave an official nod to the OASDI tax. This was when the US economy was in a poor state. According to Investopedia, nearly 222,000 people benefited from $22.60 a month’s earnings. Since then, OASDI taxes have grown toIf you take a close look at a paycheck stub or statement containing payroll check information, you may notice an item or deduction item labeled “OASDI” and wonder what OASDI is? What does it mean?

OASDI is the English acronym for “Old Age, Survivors and Disability Insurance.” OASDI refers to taxes that are collected on personal income on a paycheck. 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 “payroll tax” deductions in the United States 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 the OASDI payroll deduction may also be called FICA tax

FICA refers to the Federal Insurance Contributions Act, legislation that authorizes the federal government to collect this tax that finances social security in the US.  

OASDI, better known as Social Security, benefits tens of millions of people in the United States. The Official Blog of the Social Security Administration explains what FICA is

OASDI Overview

The OASDI program was created when President Franklin D. Roosevelt signed the Social Security Act 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. 

OASDI also provides benefits to people with disabilities who cannot work and earn enough to live on.

The program began as a modest effort to help older workers during the Great Depression. Nonetheless, it has grown to become the most extensive system in the world. The Social Security Administration is responsible for Medicare health insurance and OASDI. 

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 was 6.2 percent of income earned before deductions are subtracted. 

For example, if an employee’s gross salary reaches $1,000 per month, $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 the SSA, manages these funds in two trusts: 

The first corresponds to the Old-Age and Survivors Insurance Trust Fund (OASI) for retirement, and the second is the Disability Insurance Trust Fund (DI) for disability. 

It should be clarified that the FICA tax does not apply to “unearned income,” that is, those that do not derive from an employment relationship, such as interest and earnings on shares. 

Remember that “earned income” means any wages, tips, and other employment payments that you receive.

The OASDI deduction applies to the first $137,700 of your earned income per calendar year. Thus, if your earnings reach that amount before September 30, you will not have to pay social security taxes on your additional wages until December 31. 

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