OASDI stands for Old-Age, Survivors and Disability Insurance Program, better known as Social Security. It’s the official name for the federal government’s program that provides financial benefits to retirees, disabled people and their surviving dependents. The program was started by President Franklin D. Roosevelt in 1935 during the Great Depression. It was designed to partially replace income lost due to old age, disability or the death of a spouse or parent. If you check your pay stub, you may see an OASDI deduction but more likely you’ll the deduction labeled as FICA of Social Security. FICA stands for Federal Insurance Contributions Act. Since OASDI is a federal program, the federal government sets withholding rates and they’re the same in every state, including Oregon. Just about everyone has to pay OASDI, but there are a few exceptions.
OASDI withholding, FICA and Social Security are all federal Social Security tax.
Exceptions to Paying OASDI Tax
Most exceptions to having OASDI taken out of your paycheck apply to groups of taxpayers but a couple are for individuals. Religious groups that are opposed to accepting Social Security benefits might qualify for an exemption. If you’re a nonresident alien, you may not have to pay Social Security. Nonresident aliens are foreign students or educational professionals studying or working temporarily in the U.S. This exemption might also include the family and domestic workers employed by the nonresident alien.
As an individual, if you have a job at the same school that you’re attending as a student you’re probably eligible for an exemption. If you work for a foreign government you may also qualify.
None of these exemptions are automatic. You have to apply for them. If you’re asking for an exemption for religious reasons, use Form 4361. For all other reasons use Form 4029. If you were ever previously eligible for Social Security benefits, even if you didn’t receive them, you won’t be able to qualify for an exemption.
OASDI Tax in 2018
The present Social Security tax rate is 6.2 percent of your gross income up to $128,700 for 2018. Anything you earn above the $128,700 cap is not subject to Social Security tax.
This year those collecting Social Security benefits got a 2 percent raise. That’s about a $25 increase for the average beneficiary. If Social Security is your only income it’s tax-free, but it changes if you retire before your full retirement age and continue to work. For 2018, you can only earn up to $17,040 in addition to your early Social Security before it affects your benefits. After that you’ll have to repay $1 for every $2 you earned.
OASDI Tax in 2017
The Social Security tax withholding rate was 6.2 percent in 2017 as well. The income cap at which Social Security tax was no longer taken out of your pay was $127,700. Social Security benefits went up 0.3 percent from 2016 giving the average beneficiary a $5 a month raise. In 2017, you were able to earn up to $16,920 before you had to repay part of your benefits.
State Tax on OASDI
Most states don’t tax Social Security benefits but some do. Those that do are: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont and West Virginia. Also, the District of Columbia doesn’t tax Social Security benefits. Some of these states tax Social Security the same way the federal government does. Others have their own thresholds for when your combined income (Social Security plus earnings) becomes taxable. For example, Connecticut starts taxing you when your total income goes over $50,000 for a single taxpayer. Starting in 2019, it will be $75,000.
- Connecticut General Assembly.gov: Office of Legislative Research, 2017 Changes to Income Tax Exemptions for Social Security and Pension Income
- Intuit TurboTax: Who Is Exempt from Paying Social Security Tax?
- Investopedia: Old-Age, Survivors and Disability Insurance Program - OASDI
- IRS.gov: Student Exception to FICA Tax
- IRS.gov: Topic Number: 751 - Social Security and Medicare Withholding Rates
- Journal of Accountancy: Social Security Administration announces large increase in 2017 wage base
- Kiplinger: 13 States That Tax Social Security Benefits