What Are FICA-OASDI Taxes?
You may have noticed a deduction from your paycheck that is labeled FICA or OASDI. These deductions are for Social Security taxes. FICA stands for Federal Insurance Contribution Act, and OASDI stands for Old Age, Survivors, and Disability Insurance. This deduction is a direct tax against your payroll earnings that funds various Social Security benefits programs.
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Tax Rate
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FICA taxes are withheld from your paycheck at one rate regardless of your income or number of exemptions or allowances, unlike income taxes, which will be withheld at a variable rate. The rate is 6.2 percent of your pay up to maximum earnings of $106,800. If you earn more than this, when your year-to-date earnings exceed this amount, your payroll department will stop withholding the tax. For 2011, the withholding rate has been temporarily cut to 4.2 percent.
Employer Contribution
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The amount that you see deducted from your paycheck each pay period is not the end of Social Security taxes. Your employer must also pay the same amount that you do, except the employer contribution does not benefit from the temporary reduction for 2011. Essentially, you, as the employee, pay this tax as well, because most employers figure this into the total cost of payroll, and it is money not available to pay you. However, the tax is not shown to individuals, so it is essentially hidden.
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What It Pays For
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The most well-known item that FICA taxes pay for is Social Security retirement benefits, which are available to people who have contributed for a sufficient time period to the Social Security system. The tax money also funds Social Security disability, for people who are permanently disabled. Survivor's benefits are also included for some people with a spouse or parent who died leaving dependents behind. Social Security taxes are not placed in an account for the payor, like a retirement account. The taxes are used to pay benefits to the current recipients.
Other Considerations
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If you work at multiple employers throughout the year, you may earn over the maximum salary for FICA taxes, but your employers may not be aware of this, and continue withholding money from your paycheck. If this happens, you can receive credit for the overpaid taxes when you file your federal income tax return for the year, and a potential refund. Some employers appear to withhold more FICA than the allowable rate. Medicare taxes are set at 1.45 percent as of 2011, and some employers add this in to the FICA withholding amount.
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