The Old Age, Survivors, and Disability Insurance OASDI tax is a federal payroll tax levied on employees and employers to fund Social Security benefits. This post on OASDI will discuss everything you need to know about this obligatory tax, including its rates, how it works, and what penalties you may face for not paying it.
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What is the OASDI tax?
The OASDI tax is a Social Security tax levied on wages, salaries, and other compensation collected by withholding from employees’ pay checks. Employers also contribute an equal amount of OASDI tax. In 2023, the OASDI tax rate is 12.4% on wages up to $160,200, with employees and employers each paying 6.2% of the tax.
Is OASDI part of FICA tax?
The answer is yes. An employee pays the OASDI and Medicare tax as part of the 7.65% Social Security and Medicare tax rate, also known as the Federal Insurance Contributions Act or FICA tax. The breakdown of the FICA tax rate is as follows:
- OASDI tax: 6.2%
- Medicare tax: 1.45%
So, when an employee sees a deduction of 7.65% from their paycheck, it includes both the OASDI and Medicare taxes. The employer also pays an additional 7.65% in FICA taxes on behalf of the employee, which provides for their share of the OASDI and Medicare taxes and the employer’s share of those taxes.
How does the OASDI work?
The OASDI is a Federal Insurance Contributions Act or FICA tax. Employers are responsible for withholding the OASDI tax from their employee’s paychecks and remitting it to the IRS every quarter. Self-employed individuals must also pay the OASDI tax through the Self-Employment Contributions Act (SECA) tax.
The OASDI tax rate is subject to change each year based on changes in the Consumer Price Index (CPI). In addition, the maximum amount of wages subject to the OASDI tax also varies each year. For 2023, the total amount of wages subject to the tax is $160,200.
Who pays the OASDI tax? Does self-employed pay it?
Both employees and employers are required to pay the OASDI. Employees are responsible for paying 6.2% of the tax, while employers are responsible for paying the other 6.2%. The self-employed are responsible for paying the full 12.4% of the tax.
Who is exempt from this tax?
There are a few exemptions to the OASDI tax. For example, some state and local government employees and certain religious group members may be exempt from paying the tax. In addition, nonresident aliens who are not U.S. citizens or residents are generally not required to pay the tax.
What are the penalties for not paying it?
If you fail to pay the OASDI tax, you may be subject to penalties and interest. The Internal Revenue Code (IRC) provides for several penalties for failure to pay payroll taxes, including the Trust Fund Recovery Penalty (TFRP), which can be assessed against individuals responsible for collecting, accounting for, and paying over payroll taxes but willfully failing to do so.
In addition, failure to pay the OASDI tax can also make you liable for the failure to pay the penalty @ 0.5% per month, up to a maximum of 25% of the unpaid tax amount. Here is the failure to pay penalty calculator. In some cases, the penalty can be higher, especially if the IRS determines that the failure to pay was due to willful neglect or fraud.
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