Understanding OASDI Tax and Social Security Withholding Rate

On October 2015, the Social Security Administration, SSA, released their Social Security withholding rate for 2016.  The total Social Security tax limit for 2016 was set to 7.65% for each employee and employer.  This Social Security tax rate is broken out into two separate categories.  The Old Age, Survivors, and Disability Insurance, also known as OASDI Tax, portion is 6.2% while the Medicare withholding portion or the hospital insurance is 1.45%.

The Maximum Taxable Earning

Our Social Security Withholding rate of 7.65% is on the high end especially the OASDI tax portion.  However, the good news is that Social Security Administration did not raise the oasdi tax and med tax rates in 2016 so our total Social Security Withholding rate maintained same as 2015 SSA tax rate.

The maximum Social Security OASDI tax is still set at $118,500 with no limit on the maximum Med tax.  This means the maximum Social Security Withholding rate amount remains at $7,347 in 2016.

Useful information in gauging employee’s salary

Do you know what happens if you earn more than the maximum Social Security Withholding rate?  In the fall of the year, depending on when you reach the maximum OASDI tax amount, you will notice that your paycheck amount increases without alerting you, most likely about 6.2% higher.  If you look and compare carefully between your pay stubs, the increase is due to reaching maximum OASDI tax amount for the year.  Psychological, this increase in take home pay check brings much excitement and joy and only those who are fortunate enough to earn more than the maximum OASDI tax amount will experience this feeling of receiving increased paychecks for the remainder of the year.

Here is the trick that you can use to estimate other people’s salary…
You can ask them if they are aware of paycheck increases in November or December by about 6%?  If they have no clue then it is safe to assume their salary has not reach the maximum OASDI tax.

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