OASDI, which stands for Old-Age, Survivors and Disability Insurance, is a federal program that provides benefits to qualified retirees and disabled individuals and their beneficiaries. Commonly called Social Security tax, OASDI tax is mandatory for members of Congress, employees, employers and self-employed people, unless they’re exempt. The taxes collected from these sources fund the Social Security, or OASDI, program, which the Social Security Administration oversees.
Given the role of OASDI - or Social Security - as a safety net in society for the most vulnerable among us, funding this program through tax is mandatory for all eligible taxpayers.
History of OASDI
The Social Security Act that President Franklin D. Roosevelt first signed into law in 1935 didn’t include disability insurance. Therefore, the “D” was missing from OASDI and the program was instead called OASI. When President Dwight D. Eisenhower amended the Social Security Act in 1956, he implemented the Social Security Disability Insurance program, which explains the “D” in OASDI.
Employers must take Social Security tax out of their employees’ wages at 6.2 percent, up to the annual wage limit of $128,400 for 2018. Employers pay this same amount for each employee. Railroad employers and employees pay Tier I tax, which is the same as Social Security tax, at the same rate as non-railroad employers and employees. Whereas non-railroad employees receive Social Security benefits under the Social Security program, railroad employees receive benefits under the Railroad Retirement program. Though the programs have separate regulations, they are similarly operated.
Self-employed people pay the full Social Security tax of 12.4 percent, because they do not have an employer to pay half of the cost. At tax time, when calculating their adjusted gross income, which helps determine their income tax rate bracket, they can deduct the employer portion of Social Security tax.
Exceptions to the Rule
Executive and judicial branch employees of the federal government who were initially employed before January 1984 had the choice of switching to Social Security or remaining with the old Civil Service Retirement System. Those who chose to stay in that system do not pay into the Social Security system. Others who are exempt from Social Security tax include specific members of religious groups who object to receiving Social Security benefits, nonresidents with certain types of visas, employees who work for foreign governments, and qualified students who work for a college they attend.
Connection to Medicare
When President Roosevelt signed the Social Security Act in 1935, the benefits and taxing provisions were respectively put under Title II and Title VIII. The act was amended in 1939 ; the taxing provisions were removed, made part of the Internal Revenue Code, and renamed the Federal Insurance Contributions Act. The act authorizes the collection of both Social Security and Medicare taxes. The Medicare program, which the Social Security Administration oversees, provides hospital benefits to the disabled and senior citizens. The same exemptions that go for Social Security tax apply to Medicare tax.
- Social Security Administration: Frequently Asked Questions
- Social Security Administration: OASDI and SSI Program Rates and Limits
- Union Pacific Railroad: Railroad Retirement Board (RRB) Benefits
- Social Security Administration. "What Are FICA and SECA Taxes?" Accessed March 2020.
- Social Security Administration. "Social Security (Old-Age, Survivors, and Disability Insurance) Program Description and Legislative History." Accessed March 12, 2020.
- Social Security Administration. "2021 Social Security Changes." Accessed Oct. 15, 2020.
- Internal Revenue Service. "Self-Employment Tax (Social Security and Medicare Taxes)." Accessed March 12, 2020.
- Internal Revenue Service. "Topic No. 554 Self-Employment Tax." Accessed March 12, 2020.
- Internal Revenue Service. "Publication 517: Social Security and Other Information for Members of the Clergy and Religious Workers," 2 - 6. Accessed March 12, 2020.
- Congressional Research Service. "Social Security: Raising or Eliminating the Taxable Earnings Base," Page 20. Accessed March 12, 2020.
Grace Ferguson has been writing professionally since 2009. With 10 years of experience in employee benefits and payroll administration, Ferguson has written extensively on topics relating to employment and finance. A research writer as well, she has been published in The Sage Encyclopedia and Mission Bell Media.