The OASDI tax stands for the Old-Age, Survivors and Disability Insurance.
This is a type of US tax which will be levied on your income that earned which will be used to fund the Social Security program.
This type of tax is part of the Federal Insurance Contributions Act, alongside other programs like the Medicare program. This type of tax will automatically be deducted from your paycheck.
The OASDI tax was started in 1935 and was designed to make sure that workers will be able to have sufficient funds to make sure they will be able to support themselves when they go into retirement or in situations which are similar to this.
This includes situations like disability or death or anytime when there is no direct source of income to guarantee funds for living.
This is a tax which forces workers to take into account saving for their retirement and the needs they will have at this stage in their future.
While it is not always possible for every retiree to be able to fully support themselves using the social security benefits that come from this tax, the monthly income they will receive from this plan is usually greatly appreciated and a good portion of their budget.
The benefits from this plan will also be paid onto the families of the qualified workers or with a disability as well as their dependents. This will be given to surviving family members in case of a death.
How Does The OASDI Tax Function?
It is part of the law that the OASDI tax will be automatically deducted from the paychecks of employees usually at the rate of about 6.2% and on top of this the employer will have to pay a matching 6.2%.
This will lead to a total tax of 12.4%, and these funds will then be accumulated and will then be used as a fund for monthly benefits to other social security recipients.
While this can be considered quite a high aggregate tax, there is a limit to the size of this tax. The tax for social security is limited with a maximum measure of taxable income.
This will usually change on a yearly basis based on the levels of inflation. In 2022 the maximum taxable limit is $147,000.
In spite of this there is no maximum tax for the Medicare tax, but this is only 1.45% for every dollar that is earned which also has the same matching employer tax system.
The rate for the OASDI tax has not been changed since 1990 even though it has the chance to change annually.
What To Do About OASDI If You Are Self Employed?
This tax is not just for those who are employed but also to those who are self-employed.
Because of being self-employed, you will be responsible for paying the entire 12.4% tax on the earned income and this could be paid monthly or on a quarterly basis.
This tax can cause issues for liquidity if you are self-employed, however, these self-employed individuals are allowed to deduct half of this OASDI paid tax when filing their annual taxes.
This makes the paid tax much close to the standard 6.2%. If you are self-employed you can use the IRS Schedule SE to calculate your OASDI payment.
What Is The OASDI Tax Being Used To Pay For?
By report of the Social Security Administration, on average 85 cents of all dollars that are in the OASDI tax will be put into a trust fund which is used to pay for the benefits of the current retirees receiving their retirement payment.
They are also being paid to the families and spouses of people who have died before being able to receive all of their due pay.
The rest of this dollar is put towards a trust fund which will go directly to those who have disabilities as well as their families and carers.
A small portion of the tax also goes towards the staff who work on managing and maintaining this tax program.
Is There Any Way To Be Exempt From OASDI Tax?
It is generally a requirement that if you are working within the United States and earning an income, you will need to pay this tax as it is based on your gaining an income.
However, there are a few different types of people or circumstances which you can be under which will make it, so you are exempt from paying this tax.
Some of the exemptions to this tax include some religious groups and organizations, those who are self-employed and earn under $400 in a year.
Foreign researchers as well as academics who are not counted as US citizens or permanent residents will also not have to pay this tax in spite of earning within the US.
In spite of all of these exemptions, you are not automatically going to be exempt from paying this tax if you are under any of these circumstances.
You will need to manually request an exemption from the tax and to do this you would have to fill out the IRS Form 429.
There are various visas which are needed as well to understand your relationship with the OASDI tax if you are not a permanent US resident but working within the country, all of this can be learned in the IRS website.
This OASDI tax is often known as the Social Security Tax as this is what it pays into, and it was designed to make sure that retired workers or surviving family members of them are able to be able to support themselves after they have topped working.
It is also designed to help in case of getting a disability to hinders the ability to work and earn. US workers need to pay 6.2% of income which is matched by employers up to a limit which changes annually.
While some people do not love the concept of this tax, it feels better when you see it as an investment for the future in helping you support yourself and your family in the future.