What Is OASDI Tax?
OASDI tax stands for Old-Age, Survivors, and Disability Insurance tax. It is commonly known as the Social Security tax in the United States. This tax is deducted from employees’ wages to fund Social Security benefits.
Meaning of OASDI
OASDI represents three major Social Security programs:
- Old-Age Insurance – Provides income to retired workers
- Survivors Insurance – Supports families of deceased workers
- Disability Insurance – Assists workers who become disabled
How Does OASDI Tax Work?
OASDI tax is automatically deducted from an employee’s paycheck. Employers also contribute an equal amount to support the Social Security system.
This tax applies only to income up to a specific annual limit called the Social Security wage base.
OASDI Tax Rate
The standard OASDI tax rates are:
- Employees: 6.2% of wages
- Employers: 6.2% of wages
- Self-employed: 12.4% of net earnings
Income earned above the wage limit is not subject to OASDI tax.
OASDI Tax vs Medicare Tax
OASDI tax is often confused with Medicare tax. Both are part of FICA taxes, but they serve different purposes.
- OASDI Tax: Funds Social Security benefits
- Medicare Tax: Funds health insurance for seniors
Where Can You See OASDI Tax?
OASDI tax usually appears on your paycheck under labels such as:
- OASDI
- Social Security Tax
- FICA – Social Security
Why Is OASDI Tax Important?
OASDI tax plays a crucial role in providing financial security to millions of Americans. It ensures:
- Monthly income after retirement
- Support for disabled workers
- Financial help for surviving family members
Who Must Pay OASDI Tax?
Most employees and self-employed individuals working in the United States are required to pay OASDI tax. Some government employees and specific groups may be exempt.
Conclusion
In conclusion, OASDI tax is a mandatory payroll tax that supports the Social Security system. It provides retirement income, disability benefits, and survivor assistance, making it a vital part of the U.S. social safety net.
Understanding OASDI tax helps employees better read their paychecks and plan for long-term financial security.
