What Is the OASDI Tax, and How It Affects You
What is the OASDI tax? What does it mean for you?
Today, we’re exploring these commonly asked questions. It’s important to know the answers, especially if you are considering applying for Social Security Disability.
Keep reading to learn more!
What Is the OASDI Tax
First, OASDI stands for “Old Age, Survivors and Disability Insurance.” The OASDI tax is paid by both employees and employers, and it’s used to fund Social Security. Because of this, it’s more widely known as the “Social Security tax.”
About 6.2% of your paycheck is sent to the federal government, with your employer contributing a matching 6.2%. If you are self-employed, you are responsible for the total 12.4%; however, you can claim the 6.2% employer portion as a tax deduction (so you’re not “punished” for being self-employed).
The OASDI tax is paid on wages up to $147,000. If you make more than that, the OASDI tax doesn’t come out of wages above the cap. For self-employed people, the wage cap is $137,000. The money that is collected from the OASDI tax is used to fund Social Security Administration and Medicare programs, including:
- Social Security retirement benefits
- Social Security disability insurance benefits
- Supplemental Security program benefits
- Social Security survivors benefits for widows, widowers, and dependents of eligible workers
- Medicare health benefits
The goal of the OASDI tax is to fund programs that partially replace income that a person loses due to old age, death of a spouse, or disability.
What the OASDI Tax Means for You
How much you pay toward the OASDI tax is linked to what you’ll receive in SSDI benefits. The Social Security Administration (SSA) bases your benefits on your record of “covered earnings” — the income you made on which you paid the OASDI (Social Security) tax.
To calculate this, the SSA calculates your average monthly income across your entire working life (adjusted for historical wage growth). Then, it plugs that amount into a formula to determine your primary insurance amount (PIA). If your SSDI claim is approved, the SSA awards you 100% of your primary insurance amount.
To get SSDI or retirement benefits, you need to have worked in jobs that paid into Social Security. (That’s why “Social Security Disability Insurance” has “insurance” in the name: you need to have paid your “premiums”—the OASDI tax—in order to get the benefits.)
Many Americans don’t work jobs that are covered, including many teachers, railroad workers, government workers, and expats (people who live and work abroad). These people may be able to get benefits if they worked other jobs that paid into Social Security throughout their life, but it’s not guaranteed.
Others may not be eligible if they haven’t worked recently or worked enough to gain enough “work credits.” This category might include people who immigrated to the United States later in life or stay-at-home parents.
In addition to working in a covered job, you have to meet other requirements to be eligible. These include medical and work requirements. (For more information about medical requirements, see our previous blog post.)
The work requirements involve how long you worked (the duration of work test) as well as how recently you worked (the recent work test). As you work and pay your OASDI taxes, you earn “work credits.” The SSA converts your earnings into credits: $1,510 in net earnings comes to one work credit. You can earn up to four credits per year. The older you are, the more time in the workplace (and work credits) you need to qualify:
|Age When You Became Disabled||Work Needed||Work Credits Needed|
|Before 28||1.5 years||6|
For the recent work test, it also depends on your age:
|When You Became Disabled||Work You Need|
|During or before the quarter you turn 24||1.5 years of work in the 3 year-period before you became disabled|
|In the quarter after you turn 24, but before the quarter you turn 31||Work for half the time between the quarter you turned 21 and the quarter you became disabled|
|In the quarter you turn 31 (or older)||Work for 5 out of the 10 years before the quarter you become disabled|
All that said, it’s possible to get SSDI benefits even if you personally do not meet the work requirements. For example, different rules apply to those who are seeking survivor benefits and to those who are blind or have low vision. You can learn more about work requirements in our previous blog post.
Questions? We’re Here for You
Social Security Disability can be confusing and complex. If you have questions, aren’t sure if you qualify, or need a professional to help guide you through the process, we’re here for you.
The Social Security Disability attorneys at Casper would be happy to talk to you about your claim and answer your questions. Call us today for a free consultation.