Some entries on your pay stub identify withholding amounts, such as "Federal Income Tax" or "Medicare," that are self-explanatory. Others, such as "OASDI," can be quite mysterious. The Old-Age, Survivors, and Disability Insurance programs are a collection of major federal entitlements better known as Social Security. They are funded from taxes withheld from the paychecks of most workers.
The United States uses a pay-as-you-go tax system for income taxes. You pay taxes regularly through the year rather than in a lump sum at the end of the year. Most employees make payments automatically through taxes deducted from their paychecks. These taxes, known as withholding taxes, go toward federal and state income tax as well as funding federal programs such as Social Security and Medicare .
The Old-Age, Survivors, and Disability Insurance, or OASDI, programs provide monthly benefits to retired or disabled workers as well as to the workers' dependents and surviving family members. OASDI came into being in piecemeal fashion. The original Social Security retirement benefits program was created in 1935. Dependents and survivors of workers were granted benefits in 1939. Benefits for disabled workers were added in 1956. The programs are a form of insurance, since you must pay withholding tax (insurance premiums) early in life to qualify for benefits later on.
Old Age Benefits
The most well-known OASDI program is the Social Security retirement benefits program to provide a reliable source of income in old age. Benefits are paid according to how much a worker contributed in Social Security taxes during his working years and the age at which he retires. The longer a worker waits to retire and begin collecting Social Security, the higher his monthly payments will be. Conversely, workers who retire early receive smaller monthly benefits but collect them over a longer period. The age for receiving full benefits is set by the Social Security Administration and varies according to the year in which a worker was born.
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OASDI programs also pay benefits in some cases to surviving family members of a worker who dies. Benefits are usually paid to the spouse or to support minor children but can also go to elderly parents or to adult children who are unable to work. A divorced spouse may also be able to collect survivor benefits. Survivors benefits are paid to those who do not receive their own retirement benefits.
OASDI pays benefits to workers who are unable to work due to mental or physical disabilities. Benefits are not available for short-term disabilities as the program is intended to provide support to those unable to work over long periods. A supplemental program provides benefits to both adults and children who are disabled and living in poverty.