If you don’t understand check stubs , keep in mind that OASDI is the old-age, disability and survivor insurance commonly known as social security. The payment of these programs is carried out through a tax imposed by the United States government on earnings that is withheld by the employer.
What is the deduction on check stubs?
For the payment of OASDI taxes, the deduction on the check stubs in always depends on the employee’s tax rate. For example, before 2011 the rate was 6.2% and in this same year it was reduced to 4.2% and since then there has been no changes in the reduction of the rate.
So, for example, if your paycheck is for $2,500, OASDI will withhold $105, which corresponds to OASDI’s withholding.
The limits of OASDI
Old Age, Survivors, and Disability Insurance (OASDI) has limits, because the withholding is not applicable to your annual income over a specific amount, which is adjustable according to inflation each year.
Since 2011, when the withholding percentage was modified, the amount on which the OASDI tax is applicable was also established.
Then the OASDI tax is calculated on an annual income that exceeds 160,800 dollars.
Who pays the OASDI TAX?
When you receive a paycheck, the employer pays a portion of the OASDI tax on your behalf. On your income, the employer pays 6.2% on your behalf.
This part that your employer pays has nothing to do with your paycheck but is the cost that the company must pay for having employed you. For example, if your employer paid you 2,500 dollars, the company pays the government 155 dollars for tax to the OASDI.
The OASDI deduction
The employer withholds federal income taxes from your paycheck separately from the OASDI tax. Keep in mind that it is not possible for you to request deductions for an OASDI tax reduction as you can with the federal income tax and even your marital status does not matter.
A clear example is the presentation of a joint and an individual return, since both work in the same way on the OASDI tax rate.
US payroll tax deductions
Gross salary is the actual value that the employer owes the employee and net salary is the value of the paycheck that you receive as an employee.
Once the gross salary is calculated, the amount that corresponds to the social security tax or FICA, to the local and state federal income tax, in addition to other deductions, if applicable, is deducted and withheld.
On the other hand, keep in mind that there is almost no difference between withholdings and deductions, except for the fact that withholdings are directed to state or federal taxes, while deductions are calculated on the amount that can be deducted from the employee’s salary. such as the cost of medical care, retirement benefit, donations or special funds.
How to calculate deductions
When calculating deductions, you should always use gross pay:
Step 1: Calculate the gross payment. The paycheck begins with the value of the gross salary, which is the total. If you are salaried, it is the annual value divided by the pay periods.
If you are an hourly employee, it is the value of the hours you worked at the rate including overtime.
Step 2: Calculate the value of the FIT or federal income tax withholding.
Step 3: Calculate federal income tax withholding.
Step 4: Figure Medicare and Social Security deductions. Deduct the paycheck taking into account
that the value of the FICA is a tax of 15.3% of the gross salary. The 7.65% is half of the total that is withheld from the paycheck and is the percentage that the employer pays. Also keep in mind that the Social Security Administration imposes a limit per year on taxes, therefore it is not convenient to deduct many taxes on the highest income of the employee.
In the case of high-income employees, consider the Medicare tax deduction, which begins when the employee reaches the payment value determined for the year. 0.9% is the additional tax on the gross salary, which starts at different levels according to the status of the employee entered in the W-4 and the employer does not pay additional taxes.
Step 5: Determine state income tax deductions. You should do your research so you can determine the value of these deductions and then submit them to the appropriate state or local tax authority.
OASDI and SSI Program Rates and Limits
When it comes to Social Security Disability, Survivors and Old Age Insurance:
- Employee and employers pay 6.20%
- Medicare hospital insurance for both employees and employers is 1.45%
- The maximum taxable gain is $127,200.
- Medicare hospital insurance has no limit.
- The required earnings for the work credit is $12,300 for a quarter of coverage.
- The maximum of four credits per year is $5,200.
- The annual value exempt from the earnings test is 16,920 under retirement age for the entire year.
- Per month before reaching full retirement age in the year is $44,880.
- From the month of maximum retirement age, there is no limit.
- If as a worker you retire at the total retirement age is $2,687.
- Retirement age is 66 years.
- The cost of living adjustment is 0.3%
- If you are self-employed, you pay a total of 15.3%: 2.9% for Medicare and 132.4% for OASDI.
However, it is a rate that does not include the additional 0.9% of Medicare taxes.