What Is FED OASDI/EE on My Paystub?
Demystify your paystub. Understand what FED OASDI/EE means, why it's deducted, and its purpose for your financial clarity.
When reviewing a pay stub, many individuals encounter various deductions that can seem complex. One common entry is “FED OASDI/EE,” which represents a mandatory federal payroll tax. Understanding this specific line item helps clarify how a portion of earnings contributes to significant federal programs. This article explains what FED OASDI/EE signifies on a pay stub, detailing its components and purpose.
What OASDI Means
The acronym “OASDI” stands for Old-Age, Survivors, and Disability Insurance. This federal program is more widely recognized as Social Security. It serves as a social insurance system providing financial protection to millions of Americans.
The program encompasses three primary benefit categories. Old-Age benefits offer retirement income to eligible workers. Survivors benefits extend financial assistance to family members of deceased workers, such as spouses and children. Disability benefits provide income to individuals unable to work due to a qualifying medical condition.
What EE Means
The “EE” on a pay stub next to “OASDI” designates the “Employee Expense” or “Employee” portion of this tax. This is the specific amount deducted directly from an individual’s gross wages. The employee’s contribution is a required payroll withholding.
While employees contribute a specific percentage of their earnings, employers also pay a matching portion. Self-employed individuals are responsible for paying both the employee and employer portions.
Calculating OASDI Tax
The OASDI tax for employees is a percentage of their earnings. The standard employee tax rate for OASDI is 6.2% of gross wages. This percentage is applied to an employee’s earnings up to a specific annual limit.
This tax includes a “wage base limit,” also known as the taxable maximum. This limit represents the maximum amount of earnings subject to the OASDI tax in a given year. Any income earned above this annually adjusted threshold is not subject to further OASDI taxation for that year. The OASDI tax amount on a pay stub is calculated by multiplying the gross pay, up to the wage base limit, by the 6.2% tax rate.
Purpose of OASDI Contributions
OASDI contributions serve to finance current Social Security benefits paid to eligible retirees, survivors, and individuals with disabilities. This operates on a “pay-as-you-go” principle, meaning that contributions from today’s workers directly fund benefits for today’s beneficiaries.
The money collected is not held in individual, earmarked accounts for future use by the contributing worker. Instead, it flows into a collective fund, forming part of the nation’s social safety net. This collective funding mechanism ensures continuous support for those currently receiving benefits.