June 17, 2024

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What Should I Know about OASDI as an Employer?

Social Security Tax (OASDI)?

The Old-Age, Survivors, and Disability Insurance program was created by Congress as part of the original Social Security Act of 1935 to provide benefits to the elderly, survivors of those eligible for benefits, and individuals with disabilities. The original Social Security Act was called the Old Age Security, Displaced Persons, and Vulnerability Insurance (OASDI) Act.

How Does the OASDI Program Work?

The Social Security Program (OASDI) provides Social Security credits to self-employed workers and small business owners for salaries, salaries, and other income for the duration of their employment, up to a maximum amount of income each year.

The program is funded by contributions from employees and employers through FICA taxes. This tax is based on a percentage of the employee’s gross pay, and both the employee and the company contribute the same amount. Small business owners also pay a similar tax, called a SECA (or self-employment tax), based on the net income of their business. Employees and self-employed also pay taxes for Medicare/Medicaid funds, which are part of FICA taxes.

What Should I Know about OASDI as an Employer?

As an employer, you have several responsibilities related to OASDI and FICA taxes:

  • Employers must withhold FICA taxes on all salaries of all employees until the employee has reached the Social Security maximum.
  • Employers must also set aside (as a ” payroll tax ” ) the same amount for each employee for each pay period, as the employer’s share of FICA taxes.
  • Employers must report the amount withheld from the employee’s paycheck each quarter on IRS Form 941 and
  • Make periodic payments to the IRS for employee and employer contributions to FICA taxes.
  • Report to employees annually their total income and Social Security income for the previous tax year, on Form W-2.

What Should I Know About OASDI as a Small Business Owner?

Each year, when you complete your small business tax return with the IRS Schedule C, you will need to calculate the amount of self-employment tax you have.

This calculation is done on the SE Schedule. The OASDI and Medicare taxes are added together to form the self-employment tax.

Then, you must pay this self-employment tax in addition to your federal income tax for the year. Both of these taxes are based on the net income of your business.

Note that self-employment taxes are not deductible from the amount you take from your business as an owner, so you may need to pay the estimated tax during the year if your tax liability is too high. Check with your tax professional for more information on self-employment taxes and estimated taxes.

Company owners do not have to pay Social Security and Medicare taxes on dividends received, but they do have to pay these taxes if they work as employees in their business.