There are a few federal government programs that are funded with deductions directly from the paychecks of American workers. When you look at your paycheck stub, you will see a small list of deductions that use codes that look like something the military developed. One of these codes is Fed OASDI/EE, and you might be surprised at exactly what this deduction code means.
What Does Fed OASDI/EE Mean?
Fed OASDI/EE stands for the Federal Old Age Survivors and Disability Insurance Employee Expense, more commonly known as Social Security. Every worker in the United States, whether they work for a company or are self-employed, must pay this tax. As the title indicates, the portion you see on your paycheck stub is your part of the payment. Your employer pays a matching amount that is not allowed to be taken from your pay. People who are self-employed pay both the employee and employer contribution.
How Much Is It?
The Fed OASDI/EE is a percentage of your gross pay that fluctuates based on the rate of inflation. For example, the employee percentage in 2012 was 6.2 percent, which meant that the employer contribution was the same. When this percentage is raised each year, the Social Security payments made to qualified seniors also go up by the same percentage.
Each year, the federal government sets a ceiling on the amount of income a person can make and still pay this tax. In 2013, anyone who made $113,700.00 for the year or more did not have to pay the Social Security tax. This amount changes every year based on inflation and income growth.
Not An Income Tax
Despite the fact that the Fed OASDI/EE is based on your income, it is not considered an income tax. This is a services tax that is used to fund the Social Security system. It does not affect your federal income tax rate and it does not have any impact on your income tax payments.
Similar Service Taxes
The Fed OASDI/EE tax is similar to the Fed MED/EE tax in that it funds a federal government program used to distribute money or services to citizens. The Fed MED/EE tax funds Medicare, and Medicare and Social Security work hand-in-hand to provide income and healthcare services for Americans age 65 and older.
The more you learn about the deductions on your paycheck stub, the more you learn about where your money goes. The next time you get your paycheck, take a look and see how much you are paying for the item called Fed OASDI/EE. That money is your contribution to your future Social Security distributions when you reach the qualifying age for retirement.
Jim Treebold is a North Carolina based writer. He lives by the mantra of “Learn 1 new thing each day”! Jim loves to write, read, pedal around on his electric bike and dream of big things. Drop him a line if you like his writing, he loves hearing from his readers!