What Is OASDI?
The Old Age, Survivors and Disability Insurance program (OASDI) is the official name for Social Security in the United States. The program was created by the Social Security Act of 1935. Payments from the OASDI program are made to retirees, surviving spouses and children, and disabled workers. Over 59 million Americans receive almost $863 billion in Social Security benefits and an estimated 165 million workers are covered under Social Security. Social Security is the major source of income for most elderly Americans as nine out of ten individuals age 65 and older receive Social Security benefits.
Employees and Employers Pay Into OASDI
The Federal Insurance Contribution Act (FICA) provides a system of Social Security benefits that's financed through taxes on employees and employers. FICA taxes include OASDI, as federal law requires all wage earners to pay OASDI tax.
Under federal law, employers are required to deduct 6.2 percent of an employee's wages as his or her OASDI/EE (employee) contribution and also to pay a matching amount. Your employer's share isn't deducted from your wages and is instead paid out of its own earnings. If you're self-employed, you pay the total for both the employee and employer share of OASDI/EE. The federal government places a ceiling on income that's eligible to be taxed for OASDI/EE and this ceiling fluctuates year to year. In 2015, for example, the OASDI/EE ceiling was set at $118,500.
Cost of Living
When the OASDI tax rate increases, it reflects a cost of living adjustment (COLA) for individuals on Social Security. Inflation rates determine the size of the COLA. Individuals on Social Security require their benefits to be increased as prices for necessities rise.
Social Security Credits
Credits are used to determine whether you have the minimum amount of covered work to qualify for Social Security retirement benefits. If you were born in 1929 or later, you need 40 credits or 10 years of work. If you stop working before you have enough credits to qualify for benefits, your credits will remain on your record. If you return to work, you can add additional credits so that you're able to qualify for benefits.
When you work and pay into OASDI, you earn up to a maximum of four credits per year. Over time, the way employees earn credits has changed. Before 1978, employers reported their employees' earnings every three months. In 1978, however, employers began reporting their employees' earnings once a year. Credits are based on an employee's total wages and self-employment income during the year. You may work year round to earn four credits or you may earn enough for all four credits in a shorter period of time. In 2015, a worker must earn $1,220 to receive one Social Security work credit and $4,880 to receive the maximum four credits for the year.
Things to Consider
During your life, you'll most likely earn more credits than the minimum number needed for eligibility. The extra credits you earn don't increase your benefit amount. Instead, your average earnings over your working years determine what your monthly benefit will be.
Retirement benefits depend on your age at retirement. If you begin receiving benefits before your normal or full retirement age, you'll receive a reduced benefit. You may choose to retire as early as age 62, but doing so may result in a reduction of up to 30 percent. On the other hand, you'll receive your largest benefit by delaying retirement until age 70.
If you need help with your Social Security claim you may want to contact a Social Security attorney.