What is the Old Age, Survivors and Disability Insurance (OASDI) Insurance Program?
The federal program of Social Security, Survivors, and Disability Insurance (OASDI) is the official name for Social Security in the United States. The OASDI tax noted on your payroll funds this comprehensive federal benefits program that provides benefits to retirees and people with disabilities – and their spouses, children, and survivors. The program aims to partially replace income lost due to old age, the death of a qualifying spouse, ex-spouse, or disability.
Bring a key
- The OASDI federal program is the official name for Social Security.
- It provides benefits for retirees and people with disabilities.
- The program is funded by OASDI taxes, also known as FICA payroll taxes.
- The amount of an individual’s monthly payment is based on their earnings during their years of work.
Understanding the Old Age, Survivors and Disability Insurance Program (OASDI)
The U.S. Social Security program is the largest such system in the world and is also the largest expenditure in the federal budget, estimated to cost $ 1.2 trillion in 2021. Nearly nine out of every 10 people age 65 and older Social Security benefits, according to the Social Security Administration (SSA) Social Security calculates your average monthly indexed earnings (AIME) during the 35 years in which you earned the most.
The program was introduce through the Social Security Act, sign by President Franklin D. Roosevelt on August 14, 1935, when the U.S. economy was in the depths of the Great Depression. The program has grown significantly over the years, as has the population and economy of the US. In 1940, about 222,000 people received an average monthly benefit of $ 22.60. As of December 2020, that number was almost 70 million. For 2021, the average monthly benefit is $ 1,543.
OASDI Payroll Tax
In 2021 the Social Security tax rate is 6.2% for employees and 12.4% for the self-employed.
These revenues are in two trust funds:
- Retirement and Survivors Insurance (ASI) Trust Fund for retirement
- Disability Insurance (DI) Trust Fund for people with disabilities
These trust funds pay for the benefits and invest the rest of the income they collect.
There is a limit to annual earnings on which you pay Social Security tax. In 2021, the maximum taxable earnings are $ 142,800.
OASDI Program Criteria
The OASDI program provides payments to people who meet certain criteria. For old age payments, money is paid to qualify people who start as early as age 62. The total retirement age depends on the date of birth and is 67 for everyone born in 1960 or later. For the collection of benefits, the higher maximum benefits may be collect due to delay retirement credits.
Payments are calculate on the wages of people of working age. Survivors’ payments are made to survive spouses or eligible children of decease or retire workers. Disability payments are made to eligible people who are unable to participate in a gainful activity and who meet additional criteria.
To qualify for retirement benefits, a worker must be fully insure. A worker can get full insurance by accumulating cover credits (called quarters). Credits or quarters are accumulate base on cover pay earn over some time. In 2021, a worker will be award a quarter of every $ 1,470 earn. The dollar amount is index every few years for inflation. A worker may earn up to four credits or a quarter of coverage per year, and 40 credits are require to qualify for benefits.
What do I need to know about OASDI as an Employer?
As an employer, you have a number of responsibilities related to OASDI and FICA taxes:
- Employers must set aside the same amount (as ” payroll taxes payable” ) for each employee for each pay period, as an employer’s share of FICA taxes.
- Employers must report the amounts withheld from employee paychecks quarterly on IRS Form 941 and
- Make periodic payments to the IRS in respect of employee and employer contributions to FICA taxes.
- Report to employees each year on their total income and Social Security income for the previous tax year, on Form W-2.
What do I need to know about OASDI as a Small Business Owner?
Every year, when you complete your small business tax return IRS Schedule C, you need to calculate the amount of self-employment tax you need.
Then you will need these to pay these self-employment taxes in addition to your federal income tax for the year. Both of these taxes are based on the net income from your business.
Please note that self-employment taxes are not deducted from the amounts you take from your business as an owner, so you must to pay estimated taxes during the year if your tax liability is too high. Check with your tax professional for more information on self-employment and estimated taxes.
Corporate owners must pay Social Security and Medicare taxes on dividends received, but they must pay these taxes if they work as employees in their businesses.
