Did you know that according to a Business Insider report, “an estimated 96% of workers in the US pay the OASDI tax?” So if you’re wondering what is OASDI and why you find it on your pay stub, we demystify this question. But if you are an employer looking to format OASDI on their checks correctly, we help you create a paystub.
What Is OASDI on a Pay Stub?
OASDI tax, also known as the Social Security Tax, stands for “Old Age, Survivors, and Disability Insurance program.” American workers and contractors that earn income are eligible for OASDI.
If you are an employee earning a paycheck and receive a W2 form for income tax purposes, OASDI tax automatically deducts from your paycheck 6.2%. The business employer bears the responsibility for the remaining 6.2% OASDI tax.
If you’re an employer that needs help generating a valid W2 form for your employees, don’t hesitate to use our W2-form creation services. Self-employed individuals are required to pay the complete 12.4% of OASDI tax.
Benefits of OASDI Tax
The origins of the OASDI tax date back to 1935 and is a crucial hog of the “Federal Insurance Contributions Act” (FICA). The primary benefits of OASDI tax are to provide a stable income for retired workers that paid OASDI tax for years and to help financially support eligible living family members of a deceased SSI payee. OASDI tax also extends to specific individuals with disabilities and their families.
While it may seem that the OASDI tax can be hefty with the Social Security Administration reserving the right to set OASDI tax rates, according to USA News, “the rates haven’t budged since 1990.” For example, in 2021, the OASDI tax ceiling was $142,800, while the new OASDI tax ceiling for 2022 is $147,000.
OASDI Tax for the Self-Employed
While employees of a business or a corporation automatically have the OASDI tax deducted from their paychecks, those who are self-employed must pay this retirement benefit themselves. However, according to Katelyn Magnuson of The Freelance CFO LLC, self-employed individuals “who form an LLC often end up paying less OASDI tax.”
If you are a self-employed freelancer or an independent contractor, federal law requires you to fill out a W-9 form. This way, self-employed individuals have their name and social security number, or in some cases, their tax identification number on file.
Exemptions of the OASDI Tax
Naturally-born Americans are naturalized residents, and those with legal status must pay OASDI tax. However, the federal government recognizes some members of religious organizations as exempt from paying OASDI tax and certain foreign academicians and those in the research field that are neither naturalized nor American born.
Lastly, if you are self-employed and make less than $400, you might also be exempt from paying OASDI tax. However, you must apply for this exemption by filling out IRS Form 4029.