Social security in the vast majority of countries requires by law or regulations that both the employer and the employee formalize their situation before the social security systems, in order to access benefits such as medical care insurance or Medicare, disability insurance, old age or survival.
How does the OASDI/EE deduction work?
The federal government urges all companies and workers to formalize their situation with Social Security. Once registered, both employees and employers will pay the social security tax.
The rate or aliquot corresponding to the OASDI/EE deduction is set depending on the tax category of the fiscal year. The employee is deduct a certain percentage of his income, up to a limit of USD 128,400 per year, (according to the SSA) and the company will pay that same percentage as “employer contribution”. In other words, for every dollar that is deduct for the OASDI/EE, your employer makes an equivalent contribution.
The rate for the Old-Age, Survivors, and Disability Insurance (OASDI) social program according to the SSA was set at 6.2 percent and your employer was responsible for contributing another 6.2 percent, making a total of 12.4 percent. . The deduction must be reflected in the payment receipt of your salary. OASDI/EE only applies to the first $128,400 of an employee’s earnings per calendar year. For example, if your earnings reach that total before September 30, you don’t have to pay social security taxes on your additional December 31 earnings.
Although most companies don’t deduct OASDI, when employees’ earnings hit the limit it’s always good to make sure, especially if you work for more than one employer or changed jobs mid-year, also check to see if your combined earnings from all employers exceed the limit. Remember that there is no similar limitation for Medicare.
Usefulness and management of the OASDI/EE
If you are a formal employee as define by the Internal Revenue Service (IRS), then both you and the company you work for are require to pay OASDI and HI taxes on your wage income.
Publication 15-A “Supplemental Tax Guide for Employers” provides helpful information on types of payroll taxes and the classification of workers. Although almost all employees are require to pay OASDI taxes, there is a certain group of people who are exempt, students enroll in a university and who also work part-time for that university, are an example of this.
Have you ever wondered what your employer does with the withholdings for the OASDI and the rest of the withholdings in your name?
In general, amounts must be regularly remit to the IRS throughout the year. The payment format varies according to the size of the company, being bi-weekly or monthly.
Installments are make through the Electronic Federal Tax Payment System (EFTPS) with a money order or by store at a perceive monetary organization.
A little history
The Social Security Administration website offers a detailed history of the Social Security Program, signed into law in 1935 by President Franklin D. Roosevelt.
At first, the SSA provided a continuing income only for retirees over the age of 65. Later amendments add benefits for the spouses and minor children of retired workers, for the family of workers who die prematurely, and for the disabled.
Medicare was add in 1965 to provide health insurance for almost everyone age 65 and older. The 1935 law contained initial provisions for social security taxes. However, in 1939, the tax provisions of the Social Security Act were adopt and add the Internal Revenue Code in the section we call FICA.
OASDI/EE and Medicare
Employers are generally require to make certain withholdings on your wages. Certainly, that box labeled “federal income tax” is no mystery.
If you see an “OASDI/EE” box, you will most likely see another label with “HI” (hospital insurance) or some other name for the insurance part of Medicare such as one of the Social Security programs, administered by the SSA.
In addition to the OASDI, you and your employer are require to pay Medicare for a total of 2.9 percent, 1.45% is cover from your salary and the other 1.45% is contribute by the company. Both withholdings are require by the Federal Insurance Contribution Act (FICA).
Businesses may refer to these statutory deductions by different names on their checks or pay stubs, for example: FICA-OASDI and FICA-HI, or simply “SOC SEC” for (Social Security) and “Medicare.”
