The Old Age, Survivors and Disability Insurance tax, also known as the Social Security tax, is one of the two taxes that make up the Federal Insurance Contributions Act taxes, along with the Medicare tax. These are commonly referred to as FICA taxes. Both employees and employers pay a portion of the OASDI tax, but it doesn't apply to all types of income.
The OASDI tax applies a fixed tax rate to both the employer and employee based on the income for the year. As of 2012, the employee pays 4.2 percent on all income subject to OASDI and the employer pays 6.2 percent. For example, if you earn $50,000 per year at your job, you will pay $2,100 out of your paycheck and your employer will pay an additional $3,100 in OASDI taxes for you.
Only Earned Income
The OASDI tax only applies to earned income, not unearned income. Earned income refers to money you receive for performing work, such as wages from your job or bonus income. For example, if you have $40,000 of wages and $10,000 of investment income, you only have to pay the OASDI tax on the $40,000 of wages; the $10,000 of investment income is exempt.
OASDI Tax Limits
The OASDI tax only applies to earned income up to the annual limit. After your earned income for the year exceeds the limit, you don't have to pay the OASDI tax on any additional income. For example, in 2012 the income limit is $110,100, for a maximum OASDI tax of $4,624.20. As a result, whether your earned income is $110,100 or $1 million, you will pay the same amount of OASDI tax.
Limits Separate for Spouses
If you are married, the limits on how much of your income is subject to the OASDI tax apply separately to each spouse, even if you file a joint return. For example, using the 2012 tax rates and income limits, if each spouse has $110,100 of earned income, each spouse would pay $4,624.20 in OASDI taxes for a total of $9,248.40. However, if one spouse had $220,200 of earned income and the other spouse had none, the first spouse would pay $4,624.20 in OASDI taxes and the second spouse would pay none.
Mark Kennan is a writer based in the Kansas City area, specializing in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."