What is OASDI Tax? Everything You Need to Know!
So, you’ve glanced at your paycheck and saw something called “OASDI Tax” and wondered what it is? You’re not alone! Let’s dive into what OASDI Tax is, how it works, and why it’s important for you.
What is OASDI Tax?
OASDI stands for Old Age, Survivors, and Disability Insurance. It’s a tax that funds the Social Security system in the United States. Simply put, this tax provides financial support to retirees, disabled individuals, and families of deceased workers.
The OASDI program is also commonly known as Social Security. Therefore, when you hear about Social Security Tax, it’s essentially the same thing as OASDI Tax.
How Does OASDI Tax Work?
The OASDI tax rate is 12.4% of your earnings, but don’t worry, if you’re an employee, you only pay half of this rate. That means 6.2% of your wages are automatically deducted, and your employer matches this amount by contributing the other 6.2%.
For example, if your income is $50,000 a year, then $3,100 would be withheld for OASDI Tax, and your employer would contribute another $3,100.
What About Self-Employed Individuals?
If you’re self-employed, you are responsible for the entire 12.4% OASDI tax. This might seem a bit overwhelming, but here’s a silver lining: You can deduct half of this tax when you file your annual tax return, making it more manageable.
OASDI Tax Limits
There’s a cap on the amount of income subject to the OASDI tax. In 2024, this cap is set at $168,600. This means that any income above this amount is not subject to the OASDI tax.
Therefore, the maximum OASDI contribution for employees in 2024 would be $10,453.20, and for self-employed individuals, it would be $20,906.40.
Is OASDI Tax Mandatory?
For most people, the OASDI tax is mandatory. However, there are a few exceptions. Self-employed individuals earning less than $400 per year and certain nonimmigrant and nonresident aliens may be exempt.
Moreover, specific types of visas, such as A-visas and D-visas, may grant exemptions. You can check out the IRS’s guidelines for more information: IRS Topic No. 751.
Will OASDI Cover All My Retirement Expenses?
The average Social Security benefit in 2023 was about $1,800 per month or $21,600 annually. While OASDI is a crucial source of income for many retirees, it’s often not enough to cover all your expenses. It’s essential to have additional savings, such as a 401(k) or IRA, to ensure financial stability during retirement.
Can I Get a Refund If I’ve Overpaid OASDI Tax?
Yes, you might be able to get a refund if you’ve overpaid your OASDI tax. This could happen if you work multiple jobs and your combined income exceeds the annual taxable maximum. In such cases, both employers may have withheld too much for Social Security tax, and you can claim the excess on your tax return to receive a refund.
Bottom Line
The OASDI tax on your paycheck funds Social Security benefits that support millions of Americans. While it’s a mandatory tax for most, understanding how it works can help you manage your finances better. Always make sure to plan for additional retirement savings, as OASDI benefits alone may not cover all your expenses.
For more detailed information on OASDI Tax, click here.
Have Questions About Your Taxes?
Consider working with a financial advisor to get personalized advice and create a detailed retirement plan.
Did you find this information helpful? Let us know in the comments below!
Mason Caldwell is a financial expert and writer who specializes in topics related to taxation, personal finance, and economic analysis. With extensive experience in the financial industry, Mason has contributed to numerous financial publications, sharing insights that help individuals and businesses make smarter financial decisions. Known for his ability to simplify complex financial topics, Mason’s articles are both informative and accessible to a wide audience. When he’s not writing, Mason enjoys hiking, reading historical novels, and exploring new technologies in finance.
