Social Security is another name for the Old-Age, Survivors, and Disability Insurance (OASDI) program in the United States. It is an insurance program, and for the most part all workers are required to contribute. Social Security is an important source of income for many retirees. Among elderly beneficiaries, 50% of married couples and 70% of unmarried recipients receive 50% or more of their retirement income from Social Security.
Most American taxpayers do not qualify for an exemption, though they do exist for a small number of people.
Who Is Exempt?
Members of certain religious groups may be exempt from Social Security taxes. To become exempt, they must waive their rights to benefits, including hospital insurance benefits. They must also be a member of a religious sect that provides food, shelter, and medical care for its members, and is conscientiously opposed to receiving private death and retirement benefits.
Most foreign students, scholars, teachers, and researchers are exempt if they are non-immigrant and non-resident aliens. Foreign citizens working in the U.S. for a foreign government (for example, as diplomat or consular official), also do not need to pay. State and local government employees who are covered under a public retirement plan do not need to pay twice by paying into Social Security.
Self-employed workers who make less than $400 annually do not need to worry about paying Social Security taxes.
Neither do groups at the other end of the income spectrum. The current rate is a 6.2% tax on both the employee and employer, for a total of 12.4%. But high-income individuals are exempt from paying the tax on earnings over $142,899 for 2021. This reduces their overall Social Security tax liability.
Who Gets Social Security Benefits?
Social Security benefits are given to workers who have paid Social Security taxes for at least 40 "quarters of coverage," or 10 years. Benefits are paid monthly to retirees, disabled individuals, surviving spouses, and others.
These programs include direct cash benefits, payments to surviving family members in the event of the enrollee's death, and assistance for people with documented disabilities who are unable to continue working. Most people receiving Social Security are retirees who paid taxes that supported these programs during their careers and now receive a monthly check themselves.
Social Security is a pay-as-you-go system, with current workers covering the costs of benefits provided to current recipients. The Social Security program automatically enrolls most U.S. workers. Enrollment is connected to the Social Security numbers of workers and taxpayers within the U.S. All Social Security benefits were created as part of a social safety net designed to reduce poverty and provide care for the elderly and disabled.
Officially joining an exempt group may require an application to the IRS. Taxpayers who wish to qualify for a religious exemption usually have to apply and specifically ask the IRS for an exemption from paying self-employment taxes as well. The IRS grants exemptions to ministers, members of the clergy, and Christian Science practitioners on a regular basis, for example.
Members of religious orders who have taken a vow of poverty are exempt from paying self-employment taxes on work performed for the order and don't need to request a separate exemption. However, if the order elects to be covered under Social Security, then taxes would apply. Taxes would also apply for any work performed outside of the order.
As these examples demonstrate, becoming exempt from paying Social Security taxes requires specific action by the taxpayer and special permission from the IRS. There is no legal way to stop paying Social Security taxes without applying and receiving approval or becoming a member of a group that is already exempt.