After all, you do not need to know this. You are going to pay it one way or another. You could argue that the description does not really matter. But you can also argue that it is smart to understand where your money is going.
Here’s a deep dive into the OASDI tax, what’s in it, how it works and how much you pay.
What is OASDI Tax?
OASDI stands for Old Age, Survivors and Disability Insurance. This is a tax that both you and your employer have to pay Social security fund. In fact, it is often called the “Social Security” tax.
Making matters more complicated, OASDI is part of the tax FICA tax, Which stands for Federal Insurance Contribution Act. It is a law stating that taxes must be paid out of paychecks and will be used for social security and medical programs.
Do all dollars from my OASDI tax go to social security?
Close but not enough. According to the Social Security Administration, eighty-five cents of every dollar that goes into OASDI is poured into a trust fund, which pays monthly benefits to current retirees and their families and to the children and children of living workers. About 15 cents go to a trust fund that benefits people with disabilities and their families. The reason for this is that it is “about 15 cents” that a small portion of what is left – one penny less than every dollar you contribute – goes towards the management of the Social Security program.
Is the percentage of my paycheck charged to OASDI tax?
“Employees pay 6.2% of their salary and employers pay 6.2% for a total of 12.4%,” says Kellyanne Magnusson, founder of Freelance CFO LLC, an account for freelancers.
If I am self-employed, does that mean I do not pay OASDI tax?
Well, yes and no. Technically, you do not (payments do not automatically withdraw from checks or direct deposits you send). But you are about to pay OASDI tax. You are about to pay 12.4% yourself.
If you do not pay those taxes, then you have to pay give back. There is really no way out of it.
But I have to pay 12.4% for my self-employment taxes and not 6.2%. Am I punished for being a self-employed?
It sounds that way, but no, not really. Magnusson explained it this way:
“if you’re Self employed, You can also claim the employer’s share (6.2%) as a deduction to help in the playground. OASDI wages are paid as long as you earn $ 142,800.
She says $ 142,800 is for 2021. It changes every year. Last year, self-employed taxpayers paid OASDI tax of 12.4% of their income to $ 137,700.
“After that point, you and your employer are off the hook for a 12.4% tax on income above that amount,” Magnusone says, “This is also part of the reason that many salopreneurs / single-member LLCs are one. Choose. ” S-Corporation) elections once they reach a certain income threshold, because OASDI is paid only on wages earned, S-corps only pay on the salary stated on their W-2, and then they distribute. But they do not pay tax, they take it from their company. While a sole owner or single member LLC will pay a 12.4% tax on all income, to the extent of $ 142,800. “
So if I make more than $ 142,800, I don’t have to pay Social Security?
Yes, but don’t start spending money you haven’t earned yet. Ever since you brought it up, President Joe Biden proposed a plan during his campaign that would increase the cap to $ 400,000. It is estimated that Social Security revenue will increase by $ 740 billion over the next 10 years.
Can I pay OASDI tax?
Mostly, no. You may be able to pay OASDI tax if you fill out IRS Form 4029, an application for exemption from Social Security and Medicare taxes and an exemption from benefits – and if the Internal Revenue Service agrees to the case you Let’s make.
Sometimes you can opt out of payment if you are part of a qualified religious group. This is very rare, though. Both you and your employer are required to be part of a religious group, which is required to exist continuously before or after December 31, 1950, and have other qualifications. Some non-resident aliens may opt out of paying OASDI tax (although most do). Foreign government employees can opt out of it.
But for most people reading this, it is a certainty. You are paying it. But when you start receiving, at least you will get your money back Social security check.