OASDI Tax Definition

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OASDI is a federal tax paid by all income earners in the U.S. If you are self-employed, you will pay the OASDI tax as part of your self-employment taxes. If you are an employee, your employer will deduct OASDI taxes from each of your paychecks.

Social Security

OASDI tax is the tax used to fund the federal Social Security program. Some paychecks refer to OASDI as SS/EE. OASDI is an acronym for Old Age, Survivors and Disability Insurance. Payment benefits out of OASDI depend on the amount of money contributed by the recipient over the recipient's working lifetime.

Employee Rates

The employee rate for OASDI tax is 4.2 percent of all wages earned, up to a maximum limit of $106,800 per year. Any income earned beyond $106,800 is not subject to the OASDI tax. Because the OASDI tax is independent of federal income tax, all employees pay the same percentage of OASDI tax, regardless of any income tax credits or deductions the employee may be able to claim on her annual tax return.

Employer Payment

Employers also have to pay OASDI taxes on all wages paid to employees. In fact, employers pay a higher OASDI rate of 6.2 percent of all employee wages. When combined, the employee and employer together pay 10.4 percent OASDI tax on all wages of the employee, up to $106,800 in wages per year. The employer retains the employee's portion from each of the employee's paychecks, and the employer then adds its portion to the employee's withholding.

Self-Employment

Self-employed individuals also pay OASDI taxes, although the procedure and name is a little different than it is for employees. Self-employed workers must pay estimated self-employment taxes each quarter. The self-employment tax, as of 2011, is 13.4 percent of all income, again up to $106,800 per year. The 13.4 percent is broken down into 10.4 percent OASDI tax and 3 percent Medicare tax. In essence, self-employed individuals pay both the employer portion (6.2 percent) and the employee portion (4.2 percent) of OASDI taxes.

References

About the Author

The Constitution Guru has worked as a writer and editor for "BYU Law Review" and "BYU Journal of Public Law." He is an experienced attorney with a law degree and a B.A. degree in history with an emphasis on U.S. Constitutional history, both earned at Brigham Young University.

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