A Quick Guide to Understanding OASDI Tax



What is OASDI Tax?

If you’re old, a survivor from a calamity, or disabled, you’re probably thinking of the possible ways how you can make a living. But you don’t have to worry about it. The U.S government created a program that will help these people by providing something that will replace their income. This program is known as OASDI or Old-Age, Survivor, and Disability Program.

Does it sound familiar to you? If you’re regularly working, you may have seen a deduction on your paycheck labeled as OASDI Tax. This is the official name of Social Security tax in the U.S. Also, this program is made to give federal government benefits to those who are no longer capable of working, such as the retirees and disabled, including their children, spouses, and survivors.

In this article, you’ll have an idea of how Social Security works and how it can benefit someone. So, stay tuned and scroll down if you want to learn more about this program.

  • How Does OASDI Tax Works?

All people pay the Social Security tax based on their income regardless of their work. According to the law, the total tax they need to pay is 12.4 percent of their income. However, the amount you’ll pay will differ, depending on your source of income.

Under federal law, if you are employed and working for a private company, your employer will cover 6.2 percent of the amount, and you will pay for the other half. But if you’re self-employed, you are liable to pay the full 12.4 percent.

The amount or percentage one needs to pay may differ each year. The Social Security Administration (SSA) will be updated and confirmed. While the amount of tax may not change each year, the maximum taxable earnings may do, which is affected by some factors, including inflation and the cost-of-living index.

But for the years 2021 and 2022, everyone needs to pay 12.4 percent.

  • Who are Exempted From OASDI Tax?

Not everyone can be liable to pay their Social Security tax, especially if they hold visas that would exempt them from any deductions based on the U.S taxation system. Moreover, did you know that even non-US citizens are required to pay OASDI tax? However, they may not be required to pay their taxes if they work in foreign government offices.

In addition, according to the Internal Revenue Service (IRS), you may receive tax exemptions to international students and scholars who have become resident aliens of the U.S. Furthermore, if you belong in one of the following, you don’t have to pay OASDI tax:

  • A visa holders include foreign government workers and their families and home servants.
  • D visa holders include people who work in a ship or airline. However, the exception may only apply if the aircraft provider is not a U.S company, if the vessel is a foreign vessel, and if the services are outside U.S territories.
  • F, J, M, and Q visa holders, which includes scholars and researchers, such as medical scientists.
  • G visa holders, which includes people working for international organizations, such as the World Bank, United Nations and all of its agencies, and more.
  • H visa holders, which includes people who hold H-2 and H-2A status. These people are also exempted from Medicare taxes. They are workers who perform duties in Guam, H-2 non-immigrants who are Filipino residents, and those who are temporarily working in the agricultural sector in the U.S.
  • Other exemptions include working in a church as a minister (as long as approved by the IRS), working children under 18, and nursing students. According to IRS, the last two are under specific provisions and may or may not be approved.

Furthermore, experts emphasize that only earned income is taxable under OASDI. So, if you have additional sources of profits other than your earned income, they may not be a part of the calculation for your tax. These include rental income, capital gains, stock dividends, and other forms of investments.

In addition, if you are working under S-corporations, you don’t need to pay for OASDI because they will be the ones who will deliver it entirely for you. However, they may still be subjected to pay income taxes.

  • How Much is the Social Security Tax?

how Social Security works

As mentioned before, the Social Security tax is 12.4 percent of your total earned income, which you may pay entirely if you’re self-employed and half of it if you’re working for another company. However, it is still based on the maximum taxable earnings. In 2021, the maximum taxable profits were USD$142,800. So, how does this work?

It means that the amount above the maximum taxable earnings exemption is no longer subjected to OASDI taxes. For example, if you earn USD$150,000 per year, the USD$7,200 can be yours without deductions from OASDI tax. However, they are still subjected to taxes that have no maximum limits, such as Medicare taxes.

Furthermore, in 2022, the maximum taxable earnings will be USD$147,000. So, you might need to watch out for your taxes in 2022, especially your Medicare taxes, since they have no taxable limits.

If you need help computing your taxes, you may visit the page of IRS and look for their tax withholding calculator to get an estimate depending on your budget.

  • What Will Happen if You Overpay Your OASDI Tax?

If you think it’s possible to overpay your OASDI taxes, well, it is actually possible for those people who have two jobs at the same time. Since both of your work have different management, you can assume that they will not communicate with each other talking about your taxes. So, most likely, you’ll overpay your taxes.

But don’t worry, there’s good news for you. You may file for a tax refund by showing the IRS your tax return to prove that you have overpaid your OASDI tax.

Final Words

The OASDI program of the government was created in 1935, ensuring that all workers will have a continuous stream of income when they reach their retirement age. So, you don’t have to worry about your retirement funds as long as you are paying your taxes correctly.

If you are or non-US citizen, you don’t need to check if you’re exempted from it or not. Only non-immigrants and unique visa holders mentioned above may gain exemptions from the tax.

Furthermore, don’t forget to check tax deductions. You might not be aware if you’re already overpaying your OASDI tax, and if you are, you may file a refund for it the following year.

About Aditi Singh 342 Articles
Aditi Singh is an independent content creator and money finance advisor for 5 years. She is recently added with Investment Pedia. Internet users are always welcome to put comments on her contributions.

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