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How to Deduct OASDI Taxes from Wages

1.

Determine the OASDI tax rate for the year. For 2010, the rate was 6.2 percent of the employee's gross income, up to the annual wage limit of $106,800. Use the IRS' Circular E for the appropriate tax year to find the rate.

2.

Calculate the tax. For example, say the employee earns $500 weekly. Calculate as follows: $500 x .062 = $31. Therefore, $31 would be withheld weekly for OASDI taxes.

3.

Stop the deduction once the employee meets the yearly wage limit. If you use payroll software, the system stops the withholding automatically. If you process your payroll manually, you must keep track of the employee's deduction. For example, once the employee has earned $106,800 for year 2010, cease his OASDI withholding and resume it at the start of the next year.

Tips and Warnings

  • The employer's matching OASDI amount for 2010 was 6.2 percent. Therefore, the total percentage between the employer and employer for 2010 was 12.4 percent. The employer must pay his and the employee's portion of OASDI taxes along with Medicare and federal income tax payments to the Internal Revenue Service.


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