Social Security Tax (OASDI)?
Credit established the Senior, Survivors and Disability Insurance program by Congress as part of the original Social Security Act of 1935 to provide benefits to seniors, survivors of those eligible to receive benefits, and to individuals with disabilities. The original Social Security Act is called the Old Age, Survivors and Disability Insurance Act (OASDI).
How does the OASDI Program work?
The Social Security (OASDI) program grants Social Security credits to workers and small business owners who are self-employed for their wages, salaries, and other earnings over their working lives, up to a maximum amount of ‘annual earnings.
The program is funded by contributions from employees and employers through FICA tax . This tax is based on a percentage of the employee’s gross salary, and both the employee and the employer contributions in equal amounts. Small business owners also pay a similar tax, called SECA (or self-employment tax) , based on the net income of their businesses. Both employees and the self-employed also pay tax on the Medicare / Medicaid fund, which is part of the FICA tax.
What Do I Need To Know About OASDI As An Employer?
As an employer, you have various responsibilities related to OASDI and FICA taxes:
- Employers must withhold FICA taxes from all paychecks of all employees until the employee has reached the Social Security maximum.
- The employer must also set aside (as ” payable taxes “) an amount equal to each employee for each pay period, as the employer’s portion of FICA taxes.
- Employers must report amounts withheld from employee paychecks quarterly on Form 941 and the IRS
- They make periodic payments to the IRS for employee and employer contributions to FICA taxes.
- Report to employees each year on their total income and Social Security income for the previous tax year, on Form W-2.
What Do I Need To Know About OASDI As A Small Business Owner?
Each year, when you fill out your small business tax return on IRS Schedule C, you need to calculate the amount of self-employment tax that you are to pay.
This calculation is made on the SE Schedule. OASDI and Medicare taxes are added together to tax self-employment.
Then, you’ll need to pay these self-employment taxes in addition to your federal income tax for the year. Both of these taxes are based on the net income from your business.
Note that taxes for the self-employed are not deducted from the amounts you receive from your business as an owner, so you may have to pay the estimated taxes 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 businesses.