What Is the Old-Age, Survivors, and Disability Insurance (OASDI) Program?
The Old Age, Survivors, and Disability Insurance (OASDI) program is theofficial name for Social Security in the United States. The federal OASDI tax noted on your paycheck funds this program that provides benefits to retired adults and people with disabilities—and to their spouses, dependents, and survivors.
The goal of the program is to partially replace income that is lost due to old age, the death of a spouse (or qualifying ex-spouse), or disability.
Key Takeaways
- Old Age, Survivors, and Disability Insurance is the official though little-used name of the Social Security program in the U.S.
- The program provides benefits to retired adults and people with disabilities, and to their dependents.
- OASDI taxes, also known as FICA payroll tax, fund the program from workers' wages and employer contributions.
- Individuals and employers split the Social Security taxes while self-employed individuals are responsible for both portions.
- The amount of an individual’s monthly Social Security payment is based on their earnings during their working years.
Social Security recipients will receive a 3.2% increase in 2024 due to a cost-of-living adjustment. The increase in 2023 was 8.7%, a reflection of the high inflation preceding the period.
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 Aug. 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. The average monthly benefit was $1,827 in 2023. The benefit 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, costing around $1.3 trillion in 2023. Nearly nine out of 10 individuals age 65 and older receive Social Security benefits,
Social Security benefits are determined by calculating the individual's average indexed monthly earnings (AIME) during the 35 years in which the person earned the most.
OASDI Payroll Tax
Payments to qualifying persons are funded through OASDI taxes, which are payroll taxes collected by the government. They are known as FICA taxes (short for Federal Insurance Contributions Act) and SECA taxes (short for Self-Employed Contributions Act).
In 2023 and 2024, 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 and 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 (OASI) Trust Fund for retirement payments
- The Disability Insurance (DI) Trust Fund for disability payments
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 $160,000 in 2023 and $168,600 in 2024. Income above those amounts is not subject to further OASDI tax.
OASDI Program Criteria
TheOASDIprogram 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 the individual's 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 collect higher, maximum benefits due to delayed retirement credits.
Payments are calculatedbased on people's past wages earned. Survivors' payments are made to surviving spouses or dependents of deceased 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 becomes 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 $1,640 earned in 2023 and $1,730 in 2024.
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 of up to $160,200 for 2023 and $168,600 in 2024.
At What Age Are Social Security Payments No Longer Taxed?
A portion of your Social Security benefits is taxable regardless of your age unless your income is very low.
Only individuals with incomes below $25,000 a year or couples with incomes below $32,000 a year keep their Social Security tax-free. Everyone else pays taxes on up to 85% of their benefits depending on income.
How Can I Avoid Paying OASDI Tax?
There are very rare 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 ineligible to receive 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).
That money is then paid out as income benefits to retired or disabled individuals at a rate that is adjusted regularly for inflation.
