What is OASDI Tax?

OASDI stands for Old-Age, Survivors, and Disability Insurance, and is a form of taxation implemented by the Internal Revenue Service. OASDI taxes are used to support Social Security benefits, disbursing them to retirees, deceased workers’ families, and disabled individuals. OASDI taxes are also sometimes referred to as “payroll” taxes due to their payment method.

How OASDI Taxes Are Calculated

OASDI taxes are calculated on earned income up to a yearly maximum. Currently, the maximum amount of earned income that is subject to OASDI taxes is $132,900. For those who make over this amount, they only pay taxes on the first $132,900. As of 2020, OASDI taxes are calculated at a rate of 12.4%, which is split between the employee and their employer. The employee pays 6.2% and the employer pays the other 6.2%. To calculate the amount of OASDI taxes to be paid, simply take 6.2% of the employee’s gross earnings up to the $132,900 maximum cap.

How OASDI Taxes Are Used

OASDI taxes are collected by the IRS and administered by the Social Security Administration. The taxes are used to fund Social Security benefits, including retirement, disability, and survivor’s benefits. This means that when someone is receiving Social Security benefits, it is because someone else paid OASDI taxes. OASDI taxes are not a stand-alone form of taxation, but rather, a form of taxation that is used to fund social services, making them one of the more progressive forms of taxation.

Conclusion

OASDI taxes are an important form of taxation used to fund social services such as Social Security benefits. OASDI taxes are calculated based on an individual’s earned income up to the maximum of $132,900 and are split 50/50 between the employer and employee at a rate of 12.4%. OASDI taxes are administered by the Social Security Administration and are one of the more progressive forms of taxation as they are used to fund social services.