Of all the taxes that come out of your paycheck, none can be as inescapable as those that go to Social Security. Whether you are salaried or self-employed, you generally have to contribute throughout your working life. However, there are some exceptions, which we will cover here.
- Most American workers have to pay Social Security taxes while they are working.
- There are some exceptions, including members of certain religious groups and some types of non-resident aliens.
- Federal employees hired before 1984 may also be exempt because they pay in a separate retirement system.
Basics of Social Security Withholding
If you work for an employer, your paycheck will likely show an amount withheld for FICA, the Federal Insurance Contribution Act. FICA includes both Social Security and Medicare, the federal health insurance program for Americans 65 and older.
As of 2021, your wages of up to $ 142,800 ($ 147,000 for 2022) are taxed at 6.2% for Social Security, and your unlimited wages are taxed at 1.45% for Medicare. Your employer matches those amounts and sends the total to the government.
If you are self-employed, you have to pay both halves because, in effect, you are both an employee and an employer. This is known as the SECA, or the Self Employed Contributions Act, tax.
Who does not have to pay Social Security?
As mentioned above, workers who earn a lot of money pay only part of their income. Once your income reaches a certain level, your Social Security withholding stops for the year. Officially known as the salary base cap, the threshold changes every year.
The 2021 salary cap for paying FICA taxes is $ 142,800, compared to the $ 147,000 cap in 2022.
Members of some religious groups
Some workers are exempt from paying Social Security taxes if they, their employer, and their sect, order, or organization officially refuse to accept Social Security retirement, disability, death, or health care benefits. To receive the exemption, members of such groups must submit an application using IRS Form 4029. Several restrictions apply, including:
- The group must have been around since 1950.
- The group must have provided its members with a realistic standard of living since then.
Certain foreign visitors
Although nonresident aliens employed in the U.S. typically pay Social Security taxes on the income they earn here, there are some exceptions. For the most part, these apply to foreign government employees, students and educators who live and work in the country on a temporary basis and who hold the correct type of visa. In some cases, their families and domestic workers may also be exempt.
Some American college students
American college and university students who work part-time at their schools may also qualify for an exemption from Social Security tax. The work must depend on the student’s full-time enrollment in college or university or part-time status if he is in the last semester or quarter.
“Students who are employees of a school, college or university where the student is pursuing a course of study are exempt from paying FICA taxes as long as their relationship with the school, college or university is student, which means that education is predominantly the relationship, not the job, “says Alina Parizianu, CFP®, MBA, who, in 2021, was a financial planning specialist for MMBPB Financial Services in New York.
Income beyond a certain level ($ 142,800 in 2021; $ 147,000 in 2022) is not subject to Social Security tax, but Medicare tax applies to all income.
Federal employees prior to 1984
Civilian federal government employees who started their jobs before 1984 are covered by the Civil Service Retirement System (CSRS), while those who were hired in 1984 or later are part of the Federal Employees Retirement System (FERS) . Workers covered by the CSRS are not required to pay Social Security taxes and will not receive Social Security benefits. However, those covered by the FERS are part of the Social Security system and contribute to it at the current tax rate.
Certain state and local government workers
State or local government employees, including those working for a public school system, college or university, may or may not pay Social Security taxes. If they are covered by both a pension plan and Social Security, then they must make Social Security contributions. But if they are covered only by a pension plan, then they do not have to contribute to the Social Security system.
The bottom line
So when do you stop paying Social Security tax? As long as you are employed, the answer is almost always “never.” But there are exceptions to every rule, and if one of the ones discussed above seems to apply to you, be sure to check it out.