OASDI stands for Old Age, Survivor and Disability Insurance, which is better known as Social Security. To pay for these programs, the federal government imposes income tax that must be withheld by your employer. The OASDI deduction on your paycheck shows how much was withheld.
The size of the paycheck deduction for OASDI taxes depends on the employee’s tax rate. In 2011, the rate was lowered to 4.2 percent from the previous rate of 6.2 percent, but this decline has not extended beyond 2011, at the time of this publication. For example, in 2011, if you get a paycheck for $2,425, $101.85 will be withheld for OASDI taxes.
OASDI tax limits
The OASDI tax is not applied to your annual income over a certain amount. This amount is adjusted for inflation each year. Since 2011, only income greater than US$160,800 counts to calculate the OASDI tax. To calculate the maximum you will pay per year in OASDI taxes, multiply the employee’s tax rate by the maximum income, both available on the Social Security website.
Employers pay too
Your employer also pays a portion of the OASDI tax on your behalf each time you receive a paycheck. Since 2011, the employer pays 6.2 percent of your income on your behalf. The employer portion does not come out of your paycheck but adds to the company’s cost of employing you. For example, in 2011, when your employer pays you $2,425, the company must pay an additional $150.35 to the government in OASDI taxes.
The OASDI tax is separate from the federal income taxes that must also be withheld from your paychecks by your employer. In addition, you cannot claim tax deductions to reduce your OASDI tax like you do with federal income, nor is your tax rate dependent on your filing status. For example, if you file a joint return, you have the same amount of OASDI taxes as if you filed individually.
What is the OASDI deduction?
The OASDI tax (OASDI, from the English old age, survivors and disability insurance), old age, survival and disability insurance, is more commonly known as the Social Security tax. Your employer may write OASDI on your pay stub to indicate the amount of money deducted from your paycheck for Social Security taxes that should be taken from your paycheck by your employer.
The federal government requires your employer to deduct money from your check to pay your OASDI taxes. That rate for employees has been 6.2% since 1990, but in 2011, the rate was temporarily lowered to 4.2% per year. Each time you receive a paycheck, your employer deducts the determined OASDI percentage from your gross salary. The OASDI tax rate does not change based on your filing status and does not increase as you earn more money, just like income tax.
Only your income is subject to OASDI deductions, so you do not have to pay income tax, such as interest or dividends. Also, the federal government collects the OASDI tax only on a certain amount of money each year. For example, in 2011, your employer can deduct a maximum of US$106,800 per OASDI, that is, the maximum OASDI you must pay for the year, at a rate of 4.2%, is equal to US$4,485.60.
Employer pays too
When your employer takes money out of your paycheck for OASDI, they also make a payment on your behalf. In general, he pays the same rate as the employee, but in 2011, the federal government reduced only the employee rate to 4.2% and left the employer rate at 6.2%. Like the portion you have paid, your employer’s portion of the OASDI tax is also limited to the same amount of income.
A claim of excess deductions OASDI
If you work for multiple employers and your earnings exceed the OASDI annual limit, you may have too much money withheld from your paychecks. For example, if one employer pays you $70,000 and another $80,000, the total exceeds the 2011 limit of $106,800, and if employers withhold OASDI on all of your earnings, you’ll have too much withheld. When you file your tax return, report the excess on line 69 of Form 1040, and you will be credited the total taxes paid.