When you look at your paycheck, it can be frustrating to see an alphabet soup of deductions then ends up taking a chunk out of your earnings. Knowing all the acronyms helps you figure out where all that money is going. However, it might not make you feel any better about the money coming out.
Social Security Taxes
OASDI/EE stands for old age, survivors and disability insurance, employee's earnings. The Social Security tax has two parts, one paid by the employee and the other paid by the employer. As of 2012, the employee's share of the Social Security tax is 4.2 percent and the employer's share is 6.2 percent. However, the lower rate for employees will revert back to 6.2 percent in 2013.
Only Employees Affected
Companies withhold Social Security taxes from their employees' paychecks. If you work as an independent contractor, your employer won't withhold any money from your income taxes. However, that doesn't mean you get off tax-free. Instead, you're responsible for paying self-employment taxes, which means you have to pay both the employee and employer share of the Social Security tax.
Limits on Tax
The Social Security tax might not apply to all of your wages, if you make enough money during the year. Each year, the Social Security contribution base changes with inflation. For example, in 2011 the Social Security tax only applied to $106,800 of earned income, but in 2012 this amount jumped to $110,100. For example, if in 2012 you make $150,000, the Social Security tax would only apply to $110,100 of your earnings and anything extra would not be subject to Social Security withholding.
The Social Security tax is collected separately from federal income taxes. When you file your income tax return, you won't get any credit for the amount of Social Security taxes that you've paid. The only way it will affect your return is if you work multiple jobs and your total Social Security withheld exceeds the annual limits. For example, in 2010 you shouldn't be paying more than $4,624.20 in total Social Security taxes. If one employer withheld $3,000 and the other withheld $2,624.20, you would get $1,000 back when you filed your taxes.
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