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OASDI: What You Need to Know

When employees look at their pay stubs, they often have questions about where their money is going. All those taxes! What is OASDI and why do I have to pay it? What happened to my Social Security tax? OASDI stands for Old Age, Survivor and Disability Insurance, but is more commonly known as Social Security. OASDI was instituted, along with Medicare tax, by the Federal Insurance Contributions Act (FICA). The tax is listed on pay stubs as either OASDI, SS or FICA.

OASDI is commonly thought of as a retirement benefit, which is the largest use of the tax. However, it also helps support disabled workers and the surviving spouses and minor children of deceased workers. Taxes are collected from employees and employers and remitted to the Internal Revenue Service (IRS). Benefits are then administered by the Social Security Administration (SSA). Retirees, disabled workers, and survivors can apply for benefits on the SSA's website.

All employees pay 6.2% of their taxable wages up to the wage base threshold and their employer pays a matching 6.2%. For 2019, the wage base is $132,900, which means tax is calculated on the first $132,900 earned. Wages above that threshold are exempt from tax. The SSA is not required to make annual changes to the wage base, however it has opted to increase it every year for the last three years.

Benefits are determined by the amount of tax paid by an individual. The more tax paid, the larger the benefit received. The SSA mails statements periodically to taxpayers providing their tax paid to date and their estimated benefit upon retirement. Workers can also use the SSA's online Retirement Estimator to receive a benefit estimate.

 

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