Of all the taxes that come out of your paycheck, none may be as inescapable as those that go to Social Security. Whether you're salaried or self-employed, you must generally contribute throughout your entire working life. There are, however, a few exceptions, which we'll cover here.
- Most American workers have to pay Social Security taxes for as long as they're working.
- There are a few exceptions, including members of certain religious groups and some types of nonresident aliens.
- Federal employees hired before 1984 may also be exempt because they pay into 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 Contributions Act. FICA includes both Social Security and Medicare, the federal health insurance program for Americans 65 and over.
As of 2019, your wages up to $132,900 ($137,700 for 2020) are taxed at 6.2% for Social Security, and your wages with no limit are taxed at 1.45% for Medicare. Your employer matches those amounts and sends the total to the government.
If you work for yourself, you have to pay both halves because you are, in effect, both employee and employer. This is known as SECA, or the Self Employed Contributions Act, tax.
Who Doesn't Have to Pay Social Security?
As mentioned above, workers making the big bucks pay on only a portion of their income. After their income hits a certain level, their Social Security withholding stops for the year. Officially known as the wage base limit, the threshold changes every year.
The 2020 wage limit for paying FICA taxes will increase to $137,700, versus the $132,900 limit in 2019.
Members of Some Religious Groups
Some workers are exempt from paying Social Security taxes if they, their employer, and the sect, order, or organization they belong to officially decline to accept Social Security benefits for retirement, disability, death, or medical care. To receive the exemption, members of such groups must apply using IRS Form 4029. A number of restrictions apply, including:
- The group must have been in existence since 1950.
- The group must have provided its members with a realistic standard of living since that time.
Certain Foreign Visitors
Although nonresident aliens employed in the U.S. normally pay Social Security tax on any income they earn here, there are some exceptions. Mostly, these apply to foreign government employees, students, and educators living and working in the country on a temporary basis and possessing the correct type of visa. In some cases, their families and domestic workers can 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 job must be contingent on the student’s full-time enrollment at the college or university.
"Students who are employed by 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, meaning education is predominantly the relationship, not employment," says Alina Parizianu, CFP®, MBA, financial advisor, ACap Asset Management, New York, N.Y.
Income beyond a certain level ($132,900 in 2019) isn't subject to Social Security tax, but Medicare tax applies to all income.
Pre-1984 Federal Employees
Civilian employees of the federal government who started their jobs prior to 1984 are covered under 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, nor will they 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're covered by both a pension plan and Social Security, then they must make Social Security contributions. But if they're covered solely by a pension plan, then they don’t have to contribute to the Social Security system.
The Bottom Line
So, when do you stop paying Social Security tax? As long as you're employed, the answer is almost always "never." But there are exceptions to every rule, and if one of those discussed above seems to apply to you, be sure to check it out.