If you look closely at a paycheck stub or the statement that contains the information of a payroll check, you may notice an item or deduction item labeled ” OASDI ” and ask yourself what is OASDI? What does it mean?

Well, OASDI is the acronym in English for “Old Age, Survivors and Disability Insurance”. In a paycheck, OASDI refers to taxes that are collected on personal income. These retained funds will be destined to finance the Social Security programs.

For payroll purposes, OASDI means a tax deducted from wages or salaries. One of the ” payroll tax ” deductions in the United States that is required by law.

Part of the security system federal social , which is the responsibility of the Administration Social Security (SSA or Social Security Administration ).

Sometimes the OASDI payroll deduction can also be called a FICA tax .

FICA refers to the Federal Insurance Contributions Act , legislation that authorizes the federal government to collect this tax that finances social security in the US .

The OASDI, better known as Social Security , provides benefits to tens of millions of people in the United States. The Official Blog of the Social Security Administration explains what FICA is .

The OASDI program was created when President Franklin D. Roosevelt signed the Social Security Act on August 14, 1935.

Today, the Federal OASDI program provides monthly retirement benefits to those who reach full retirement age and assistance to the surviving children of deceased workers.

The OASDI also provides benefits to people with disabilities who are unable to work and earn enough to live.The program began as a modest effort to help older workers during the Great Depression. However, it has grown to become the largest system of its kind in the world. The Social Security Administration is responsible for Medicare health insurance as well as OASDI.

Together, they qualify as programs that provide a comprehensive benefits system for tens of millions of Americans.

As of 2018, the OASDI tax rate was 6.2 percent of earned income before deductions are subtracted .

For example, if an employee’s gross salary reaches $ 1,000 per month, then $ 62 is deducted from his total paycheck for OASDI .

How do OASDI taxes work?

Funds withheld by the employer must be reported to the federal government. The state, through the SSA, manages these funds in two trusts:

The first corresponds to the  Trust Fund Insurance Old Age and Survivors (OASI or Old-Age and Survivors Insurance Trust Fund) for retirement and a second Trust Fund Disability Insurance (DI or Disability Insurance Trust Fund) for disability.

Investopedia.com offers other details about how the Old Age, Survivors and Disability Insurance Program (OASDI) works .

It should be clarified that the FICA tax does not apply to “unearned income” that is, those that do not derive from an employment relationship, such as interest and earnings from shares.

Remember that “earned income” means any wages, tips, and other work payments that you receive.The OASDI deduction only applies to the first $ 137,700 of your earned income per calendar year. Thus, if your earnings reach that amount before September 30, you will not have to pay social security taxes on your additional wages until December 31.

How much is the tax rate for the OASDI Program?

SSA fixed every year the tax rate for the OASDI , Medicare and Program Supplemental Security Income (SSI or Supplemental Security Income), although since 2018 the tax rate for OASDI has remained at 12.4 percent.

Of which 6.2 percent is deducted from your paycheck and another 6.2 percent is covered by the employer as a work benefit.In other words, for every dollar deducted from the OASDI Program, employers pay an equal amount.

Individuals who are self-employed or self-employed must contribute the employee and employer portions. What this means is that the self-employed OASDI rate equals 12.4 percent .

It is important that employees pay the OASDI Program tax , because the amount they contribute today determines the size of their future Social Security benefit checks .

There is an annual limit on the amount of income that is subject to the OASDI tax and this limit can vary from year to year.

Called the salary base or annual taxable maximum, this limit was US $ 128,400 as of 2018 and for 2020 it is US $ 137,700. The taxable maximum is adjusted each year, based on changes in average wages.

On the official website of the Social Security Administration , Research and Statistics section, you can see the maximum annual taxable income and the rate that apply for the OASDI program .

OASDI and MedicareMedicare is the health insurance program run by the Social Security Administration that provides coverage to the elderly and disabled who qualify for Social Security disability income benefits.

It is a separate program from OASD I , but supplements the cash benefits of federal old – age and disability coverage .

Like OASDI , Medicare is funded by a payroll tax and employer contributions.

The Medicare tax rate has remained at 1.45 percent, under the same scheme: 1.45 percent is deducted from your payroll and another equivalent percentage is provided by your employer as a benefit by law.

Unlike the OASDI for Medicare, there is no maximum amount of taxable earnings. 2.9 percent is taxed on all earned income .