What Is the Old-Age, Survivors, and Disability Insurance (OASDI) Program?
The Old Age, Survivors, and Disability Insurance (OASDI) program is the official name for Social Security income in the United States. The federal OASDI tax noted on your paycheck funds this comprehensive federal benefits program that provides benefits to retired adults and people with disabilities—and to their spouses, children, and survivors. The goal of the program is to partially replace any income that is lost due to old age, the death of a spouse (or qualifying ex-spouse), or disability.
- The Old Age, Survivors, and Disability Insurance program is the official name for Social Security income benefits.
- The program provides benefits to retired adults and people with disabilities.
- OASDI taxes, also known as FICA payroll taxes, fund the program from workers' wages.
- Individuals and employers contribute half of the Social Security taxes while self-employed individuals are responsible for both portions.
- The amount of an individual’s monthly payment is based on their earnings during their working years.
Understanding the Old-Age, Survivors, and Disability Insurance (OASDI) Program
The U.S. Social Security program (including both retirement and disability income) was ushered in through the Social Security Act, signed by President Franklin D. Roosevelt on August 14, 1935, when the U.S. economy was in the depths of the Great Depression. The program has grown massively over the decades, along with the U.S. population and economy.
In 1940, about 222,000 people received an average monthly benefit of $22.60. As of mid-2022, that number was approximately 70.61 million. For 2022, the average monthly benefit has been $1,681 and is expected to jump to $1,827 in 2023. This amount is reviewed annually and adjusted for inflation.
It is the largest such system in the world and is also the biggest expenditure in the federal budget, projected to cost around $1.3 trillion in 2023. Nearly nine out of 10 individuals age 65 and older receive Social Security benefits, according to the Social Security Administration (SSA). Social Security calculates your average indexed monthly earnings (AIME) during the 35 years in which you earned the most.
OASDI Payroll Tax
Payments to qualifying persons are funded through OASDI taxes, which are payroll taxes collected by the government that are known as FICA taxes (short for Federal Insurance Contributions Act) and SECA taxes (short for Self-Employed Contributions Act). In 2022 and 2023, the Social Security tax rate is 6.2% for employees and 12.4% for the self-employed. The combined federal tax rates for Social Security + Medicare are 7.65% and 15.3% for employees and self-employed, respectively.
These revenues are kept in two trust funds:
- The Old-Age and Survivors Insurance (ASI) Trust Fund for retirement
- The Disability Insurance (DI) Trust Fund for disability
These trust funds pay out the benefits and invest the remainder of the revenue they collect.
There is a cap on annual earnings for which you pay Social Security tax. The maximum earnings subject to the tax is $147,000 in 2022 and $160,200 in 2023. Income above that amount is not subject to further OASDI tax.
OASDI Program Criteria
The OASDI program provides payments to people who meet certain criteria. For old-age payments, money is paid to qualifying persons starting as early as age 62. Full retirement age depends on birth date and is 67 for everyone born in 1960 or later. Qualifying persons who wait until age 70 (but no later) to begin collecting benefits can collect higher, maximum benefits due to delayed retirement credits.
Payments are calculated based upon people's wages earned while they were of working age. Survivors' payments are made to surviving spouses or eligible children of deceased workers or retired workers. Disability payments are made to eligible persons who are no longer able to participate in a substantially gainful activity and who meet additional criteria.
To qualify for retirement benefits, a worker must be fully insured. A worker can become fully insured by accumulating credits (also called quarters) of coverage. Credits or quarters are accumulated based on covered wages earned for a particular period. One-quarter of coverage is awarded to a worker for every $1,510 earned in 2022 and $1,640 in 2023. The dollar amount is indexed every few years for inflation.
A worker can earn up to four credits or quarters of coverage per year, and 40 credits are needed to qualify for Social Security income benefits.
Is OASDI Tax Mandatory?
Yes, federal law requires that workers and employers contribute to the OASDI fund through Social Security taxation on income up to $147,000, for 2022 and $160,200 in 2023.
At What Age Is Social Security No Longer Taxed?
Social security taxation is levied over your entire working life. As long as you receive a paycheck or earn income for yourself, you must pay it. You can start claiming Social Security Income when you reach age 62. Keep in mind that the full retirement age is 65 if you were born before 1960, or else age 67.
How Can I Avoid Paying OASDI Tax?
There are very few exceptions and exemptions to OASDI taxes, including clergy of certain religious groups and some types of nonresident aliens. Note, however, that these individuals are also then ineligible from receiving social security payments.
The Bottom Line
The OASDI Program is the federal benefits program, better known as Social Security. It covers both retirement income for individuals and surviving spouses, as well as disability income. Workers pay into the program through a tax levied each year on a portion of their income at a rate of 6.2% for employees (or 12.4% for self-employed individuals) on income up to $147,000 for 2022 and $160,200 in 2023. That means that up to a maximum of $9,932.40 will be paid into OASDI by employees. OASDI then is paid out as income benefits to retired or disabled individuals at a rate that is adjusted regularly for inflation.