Fed OASDI/EE, more commonly known as Social Security tax, is one of the federal taxes that is taken out of an employee’s paycheck. Fed OASDI/EE stands for Old Age Survivors and Disability Insurance Employee share.
Who Pays the Fed OASDI/EE Tax?
The federal government requires that all employees and employers pay Social Security tax. Depending on the tax bracket of the current year, the employee will pay a certain percentage of his or her income to Social Security, and his or her employer will match that percentage and pay in the same amount.
What does the Fed OASDI/EE Tax Pay For?
Simply stated, the Fed OASDI/EE tax provides the funds to pay out social security benefits. These benefits cover supporting the following:
- Retirees and their families (someone can receive these benefits at the earliest age 62) ~72 percent
- Disabled persons – as defined by the Social Security Administration, disability is “the inability to engage in any substantial gainful activity (SGA) by reason of any medically determinable physical or mental impairment(s) which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months.” ~16 percent
- Survivor benefits (widowed spouses and children) ~9 percent
- Administrative costs ~1 percent
As the economy’s needs evolve, the Social Security’s Board of Trustees decides on an annual basis if there needs to be any adjustments to the system.
Fed OASDI/EE Tax Rates 2018
The Fed OASDI/EE is charged takes a percentage of your gross income, and if you’re an employee that percentage is removed automatically out of your paycheck. Currently, the Fed OASDI/EE tax is 6.2 percent (2018), but tax rates may fluctuate from year to year. Employers must pay an additional 6.2 percent to the federal government. The employer’s share is not subtracted from employee wages. Instead, the employer pays these taxes to the federal government out of its own earnings.
The federal government places a ceiling on income that is eligible to be taxed for the Fed OASDI/EE program. For example, in 2018, any income over $128,400 would not be taxed for Social Security. The ceiling for this tax fluctuates from year to year and has continued to rise over the past decade.
Fed OASDI/EE and Cost of Living
When Fed OASDI/EE tax rates increase, it reflects a cost of living adjustment (COLA) for citizens on Social Security. The size of the COLA depends on inflation rates. As prices of necessities go up, the people receiving Social Security need to have their benefits increased to keep up with the cost of living.
Employees need to remember that that Fed OASDI/EE tax is completely different from federal income taxes. The federal income tax is just what it sounds like. It is the amount of your income that is taxable. Federal income tax is determined by how much you earn and how many dependents you claim. For example, an individual can claim themselves, their spouse, and each of their children as dependents.
The federal government uses withholding tax to fund food stamps, housing assistance, national defense, meals for school children, and energy assistance. Federal income tax also pays for infrastructure and research.
Self Employment and Fed OASDI/EE
Those who are self-employed, like freelancers, business owners, and independent contractors have to pay 12.4 percent of their gross income to Social Security; this is both the employer and employee share of the Fed OASDI/EE tax. However, there are certain tax deductions self-employed people can claim to avoid paying as much in taxes.
However, whether you are employed by a company or are self-employed, knowing where you stand when it comes to income taxes is extremely important to avoid under or overpaying the IRS. So, how long should you keep records of your income taxes? Read here to find out how to protect yourself and your money.