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Dear GirlLegal: I just started a new job and on my pay stub I noticed I’m getting taxed for OASDI/EE. The problem is I’ve never had this tax taken from any previous job before in my life. What is this tax, and is it legal?

Answer: Congratulations on your new job. “O ld A ge, S urvivors and D isability I nsurance”. It’s the formal name for social security. More frequently it’s referred to as “FICA tax”. (”Federal Insurance Contribution Act”). It stands for Old Age, Survivors and Disability Insurance and it is not a one time tax. It is Social Security and Medicare tax.

Essentially, Social Security tax/OASDI was created to insure all workers and their families against certain universal risks, while spreading the costs and benefits of that insurance protection among the entire workforce. When you get your paycheck and look at the before and after tax amounts - OASDI taxes are part of those withholdings.  In 2010 you get to pay a generous 6.2% of your pay and your employer also gets to match that amount. But, the good news is that this tax stops once your earnings hit $106,800 for the year.

To answer your question, yes - this is legal. In fact, everyone who is eligible to pay taxes, pays OASDI. A person contributes to Social Security either through payroll taxes or self-employment taxes under the Federal Insurance Contributions Act (FICA) or the Self-Employed Contributions Act (SECA). Employers match the employee contribution, while self-employed workers pay an amount equal to the combined employer-employee contributions. (Self-employed workers receive a special tax deduction to ease the impact of paying the higher rate.)

Like I said above, there is a maximum yearly amount of earnings subject to OASDI taxes - for 2010 this threshold is $106,800; and the 2010 tax rates are as follows:  SS (Social Security) tax rate – 6.2%; Medicare tax rate – 1.45%. There is no upper limit on taxable earn­ings for Medicare Hospital Insurance. Employees whose contributions exceed the maximum taxable amount because they worked for more than one employer can receive refunds of excess FICA payments when they file their tax returns.

You’re probably familiar with the fact that this program benefits certain people. Specifically, it provides monthly benefits to qualified retired and disabled workers and their dependents, and to survivors of insured workers. Eligibility and benefit amounts are determined by the worker’s contributions to Social Security. Benefits are paid as an earned right to workers, their families and their survivors. There is no means test to qualify for benefits.

Taxes are allocated to the Old-Age (Retirement) and Survivors Insurance (OASI), the Disability Insurance (DI), and the Hospital Insurance (HI) Trust Funds. In addition to the taxes on covered earnings, OASI and DI trust fund rev­enues include interest on trust fund securities, income from taxation of OASI and DI benefits, certain technical trans­fers, and gifts or bequests. By law, the OASI and DI trust funds may only be disbursed for:

  • 1. Monthly benefits for workers and their families.
  • 2. Vocational rehabilitation services for disabled bene­ficiaries.
  • 3. Administrative costs (currently less than 1 percent of expenditures).
  • 4. The lump-sum death payment to eligible survivors.

Social Security benefits are essential to the economic well-being of millions of individuals. The program pays benefits to more than 90 percent of those 65 or older; and is the major source of income (providing 50 percent or more of total income) for over half of these beneficiaries.

Here are additional references: and

I hope that you find this information useful.

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