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What Does Fed OASDI/EE Mean on a Paycheck?

What is OASDI/EE?

OASDI/EE is an acronym meaning, “Old Age, Survivors and Disability Insurance/Employee Expense.” It is, however, also known by a much more common name — Social Security. The program began in 1935 with the Social Securities Act and is a wide-reaching program that affects many Americans every year. Benefit payments paid through the Social Security program are financed through the OASDI/EE tax on employees and employers (employers must match the percentage paid be each employee).

What does Fed OASDI/EE pay for?

The Fed OASDI/EE tax provides the funds to pay out Social Security benefits. These benefits cover a wide range of recipients and causes:

Retirees and Their Families: At the earliest, an individual can receive these benefits at age 62
Disabled Persons: As defined by the Social Security Administration (SSA), 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.”
Survivor Benefits: Widowed spouses and children
Administrative Costs
Additional Needs: As the economy evolves, the SSA’s Board of Trustees decides if there needs to be any adjustments to the system on an annual basis

OASDI/EE Benefits

There are different types of benefits under the OASDI/EE (Social Security) umbrella. Paying the OASDI/EE tax does not necessarily automatically make an individual eligible for Social Security retirement, survivors, and disability benefits, but it does affect how much of those benefits an individual is able to collect upon becoming eligible.

Social Security Credits

To qualify for Social Security benefits, an individual must earn a certain number of credits over time. These credits are based on earnings and, combined with work history, are used by the Social Security Administration (SSA) to determine eligibility for retirement and disability benefits or a family’s survivors benefits.

In 2021, an individual receives one credit for every $1,470 of earnings up to a maximum of four credits each year. Every year, the amount of earnings required to gain a credit goes up a small amount to reflect the increase of average earning levels. As outlined by the SSA, here is some eligibility information for various types of Social Security benefits:

Retirement Benefits: “Anyone born in 1929 or later needs 10 years of work (40 credits) to be eligible for retirement benefits.”

Disability Benefits: “How many credits you need for disability benefits depends on how old you are when you become disabled.

If you become disabled before age 24, you generally need 1½ years of work (six credits) in the three years before you became disabled.
If you are 24 through 30, you generally need credits for half of the time between age 21 and the time you became disabled.
If you are disabled at age 31 or older, you generally need at least 20 credits in the 10 years immediately before you became disabled. The following table shows examples of how many credits you would need if you became disabled at various selected ages. This table does not cover all situations.”

Survivors Benefits: “When a person who has worked and paid Social Security taxes dies, certain members of the family may be eligible 4 (over) for survivors benefits. Up to 10 years of work is required to be eligible for benefits, depending on the person’s age at the time of death. Survivors of very young workers may be eligible if the deceased worker was employed for 1½ years during the three years before his or her death.

Social Security survivors benefits can be paid to:

A widow or widower — full benefits at full retirement age, or reduced benefits as early as age 60.
A disabled widow or widower — as early as age 50.
A widow or widower of any age who takes care of the deceased’s child who is younger than age 16 or disabled, and receiving Social Security benefits.
Divorced spouses under certain conditions.
Unmarried children younger than age 18, or up to age 19 if they attend elementary or secondary school full time. Under certain circumstances, benefits can be paid to stepchildren, grandchildren, or adopted children.
Children who were disabled before age 22 and remain disabled.
Dependent parents age 62 or older.”

In general, Social Security benefits fall under three categories:

Retirement Benefits
Disability Benefits
Survivors Benefits

Retirement Benefits

Retirement benefits are available for workers 62 and older or who have earned at least 40 Social Security credits. While there are many intricacies retirement benefits, two aspects are particular important to note — average indexed monthly earnings (AIME) and full retirement age (FRA).

Along with the age at which an individual begins collecting benefits, the AIME determines the size of the benefit checks. The Social Security Administration calculates this amount. According to the SSA:

“When we compute an insured worker’s benefit, we first adjust or “index” his or her earnings to reflect the change in general wage levels that occurred during the worker’s years of employment. Such indexation ensures that a worker’s future benefits reflect the general rise in the standard of living that occurred during his or her working lifetime.

“Up to 35 years of earnings are needed to compute average indexed monthly earnings. After we determine the number of years, we choose those years with the highest indexed earnings, sum such indexed earnings, and divide the total amount by the total number of months in those years. We then round the resulting average amount down to the next lower dollar amount. The result is the AIME.” — Social Security Benefit Amounts, Social Security Administration

An individual must wait until their Full Retirement Age (FRA) to collect standard benefits based on their AIME. For people born between 1943 and 1954, the FRA is 66. The age then increases by two months every year after 1954 until reaching age 67 for people born in 1960 or later.

Disability Benefits

Social Security disability benefits for adults 18 years old or older who can’t work because of a physical or mental disability that is expected to last more than 12 months or end in death. The 40-credit threshold isn’t always necessary to collect these benefits and the amount of each check is determined by average lifetime earnings. This means someone who worked longer before becoming disabled will collect more in benefits than someone who worked for a shorter time.

The application for Social Security disability benefits should be followed closely to ensure a timely decision. The general process for applying (as collected from the Disability Benefits section of the SSA website) is:

You gather the information and documents you need to apply. We recommend you print and review the Adult Disability Checklist. It will help you gather the information you need to complete the application
You complete and submit your application
We review your application to make sure you meet some basic requirements for disability benefits
We check whether you worked enough years to qualify
We evaluate any current work activities
We process your application and forward your case to the Disability Determination Services office in your state
This state agency completes the disability determination decision for us

Survivors Benefits

Social Security survivors benefits are for family members of deceased workers who were collecting or who were qualified for Social Security. Spouses 60 or older (50 or older if they’re disabled) can claim these benefits and spouses of any age can claim these benefits if they are caring for the children of the deceased. Ex-spouses can also claim these benefits if they were married for at least 10 years and have not remarried.

Children of the deceased are eligible for benefits if they are 18 (19 if still enrolled in high school) as are disabled children of any age if they became disabled before age 22. Parents of the deceased may also be eligible for benefits if the deceased was providing at least 50% of financial support before death.

2021 Fed OASDI/EE Tax Rate

Each year, there is a limit to the amount of earnings subject to the fed OASDI/EE tax. This calculated by a response to changes in the national average wage index. There is also a “taxable maximum.” The taxable maximum is the limit of earnings that are taxed.

The fed OASDI/EE 2021 tax rate is 6.2% with a taxable maximum of $142,800 (an increase from 2020 taxable maximum of $137,700). This means 6.2% of your wages are taken out of your paycheck and put toward the OASDI/EE program. It also means an employer must match that 6.2% for each employee.

Fed OASDI/EE 2021 Limit

With the maximum taxable amount of $142,800 and the tax rate of 6.2% in place, an individual earning $142,800 or more would contribute $8,853.60 to the OASDI/EE program in 2021.

Individual 2021 Fed OASDI/EE Taxes and Payment Limits (Employee)

Fed OASDI/EE Tax Rate: 6.2%
Maximum Taxable Amount: $142,800
Maximum Contribution (based on maximum taxable amount): $8,853.60

Individual 2021 Fed OASDI/EE Taxes and Payment Limits (Self-Employed)

Fed OASDI/EE Tax Rate: 12.4% (to account for both employer and employee contributions)
Maximum Taxable Amount: $142,800
Maximum Contribution (based on maximum taxable amount): $17,707.20

Self-Employment & OASDI/EE

Those who are self-employed, such as freelancers, business owners, and independent contractors, have to pay 12.4% of their gross income to Social Security. This accounts for both the employer (6.2%) and employee (6.2%) 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.

It’s important to remember that the maximum taxable amount does not change for an individual who is self-employed — just the OASDI/EE tax rate itself. Let’s take a look at the breakdown of individual 2021 fed OASDI/EE taxes and payment limits for self-employed individuals again.

Individual 2021 Fed OASDI/EE Taxes and Payment Limits (Self-Employed)

Fed OASDI/EE Tax Rate: 12.4% (to account for both employer and employee contributions)
Maximum Taxable Amount: $142,800
Maximum Contribution (based on maximum taxable amount): $17,707.20

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.

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, individuals 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.

2021 Cost-Of-Living Adjustment

A 1.3% COLA went into effect on December 31, 2020. For a look at the history COLA amounts throughout the years, consult this chart from the SSA.

Changes to Your OASDI/EE Contributions

Annual Changes and Calculations

The fed OASDI/EE tax amount can change annually, and the amount is set by law. The taxable maximum, however, changes based on fluctuations in the national average wage index. Because of these

The fed OASDI/EE 2021 tax rate is 6.2% (and has been since 1990) and the taxable maximum is $142,800. 6.2% of earnings are taken out of a paycheck and put toward the OASDI/EE program. It also means an employer must match that 6.2% for each employee.

If the taxable maximum changes in 2022, an individual’s total contribution amount could also change depending on their earnings. It’s also possible, however, for an individual’s fed OASDI/EE tax contributions to change during the year.

Changes During the Year

For some individuals, it can be possible to see changes to the amount of earnings taken out of a paycheck over the year. The most common reason for this change is because of reaching the maximum taxable amount for that particular year.

For instance, the maximum taxable amount for Fed OASDI/EE in 2021 is $142,800. That means 6.2% (the Fed OASDI/EE tax rate in 2021) of an individual’s earnings is taxed up to $142,800. If, throughout the course of the year, an individual’s earnings exceed that $142,800 maximum taxable amount, it’s possible to see an adjustment on the earnings afterward.

Is OASDI/EE Tax Mandatory?

Yes, OASDI/EE tax is mandatory for the majority of both employees and employers. There are certain exceptions, but they typically don’t apply to the average individual. These include:

Members of certain religious groups that oppose receiving Social Security benefits
Nonresidents with specific visa types
Employees who work for foreign governments
Qualified students who work for a college they attend

Is fed OASDI/EE Part of Federal Withholding?

Yes, OASDI/EE (along with the Medicare tax, Fed Med/EE) is what is generally referred to as federal withholding tax. These taxes are funds that are remitted by a payer (usually an employer) on a payee’s behalf (usually an employee). The 6.2% OASDI/EE tax is part of that process.

Is the Fed OASDI/EE Tax Refundable?

OASDI/EE taxes are based on a flat percentage of an individual’s salary (6.2% in the case of 2021) and do not allow for any deductions like one might apply to income tax. Because of this, refunds on OASDI/EE taxes are uncommon — but not impossible.

If an individual’s maximum tax amount is reached by wages earned by one employer ($142,800 for 2021) and that same individual earned more wages from another job, OASDI/EE taxes would still be taken out of the second position’s earnings. Because this amount would exceed the maximum tax amount, that individual would need to file for a credit on their tax return.

How Do I Get a Refund for Overpaid Social Security Tax?

As outlined above, needing to file for a refund on OASDI/EE taxes is fairly rare. There are, however, instances in which an individual will need to file for a refund if the maximum taxable amount was reached and more OASDI/EE taxes were paid.

In these circumstances, the overpaid amount must be filed in the individual’s tax returns. This is done on Form 1040, Line 71 — Excess Social Security. By adding up the amount of OASDI/EE taxes on each W-2 an individual receives and then subtracting the maximum taxable amount from that total ($142,800 for 2021), the amount of Social Security tax credit can be calculated.

How Does OASDI/EE Tax Deferral Work?

Because of the COVID-19 pandemic, a plan was put into place allowing employers the option of deferring OASDI/EE taxes from September 1, 2020 through December 31, 2020. While the original notice required employers to pay the deferred taxes ratably from employee taxes from January 1, 2021 until April 30, 2021, the IRS announced a new timeline in January 2021. The Consolidated Appropriations Act, 2021, (signed into law on December 27, 2020) extended that pay period to the entire year of 2021 — January 1, 2021 through December 31, 2021. Payments made by January 3, 2022 will be deemed timely due to December 31, 2021, being a legal holiday. Penalties, interest, and additions will now start to apply on January 1, 2022, for unpaid balance.

If an individual’s OASDI/EE taxes were deferred by an employer, the collection of those taxes could have already begun. An employee in such a position should contact the payroll department for information on the exact collection schedule.