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.
Key Takeaways
- Most American workers have to pay Social Security taxes for as long as they’re working.
- Social Security taxes are collected as part of FICA, which also includes Medicare taxes.
- The income threshold for Social Security and Medicare taxes is adjusted annually for inflation.
- 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 the Federal Insurance Contributions Act (FICA). FICA includes both Social Security and Medicare, the federal health insurance program for Americans 65 and over.
For 2023, your wages up to $160,200 are taxed at 6.2% for Social Security, and your wages with no limit are taxed at 1.45% for Medicare. Note that this maximum table earning increases to $168,600 for 2024. 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 the employee and the employer. This is known as the Self-Employed Contributions Act (SECA) tax.
Who Doesn’t Have to Pay Social Security?
High Earners
As mentioned above, workers making the big bucks pay for 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.
As mentioned above, the 2023 limit for paying FICA taxes is $160,200, and the 2024 limit for paying FICA taxes is $168,600.This limit is adjusted annually for inflation.
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 or half-time status if in the last semester, trimester, or quarter.
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”. This means the individual must predominantly be attending the school for education, not employment.
Income beyond a certain level ($160,200 in 2023 and $168,600 in 2024) 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. However, if they’re covered solely by a pension plan, then they don’t have to contribute to the Social Security system.
How Is Social Security Tax Calculated?
Social Security tax is calculated as a percentage of your gross wages, with specific rates set by the government. The Social Security tax rate is 6.2% for both employees and employers, for a total of 12.4% when combined. Note that this percentage excludes Medicare taxes.
Do Self-Employed Individuals Pay Social Security Tax?
Yes, self-employed individuals are responsible for paying both the employee and employer portions of Social Security tax. This is known as self-employment tax, and it covers both Social Security and Medicare taxes.
Can I Claim a Tax Credit for Social Security Taxes Paid?
No, there is no tax credit specifically for Social Security taxes paid. However, Social Security tax contributions may be deductible from your taxable income in certain circumstances. Discuss your specific situation with a tax advisor if you are curious about this type of deduction.
Can I Get a Refund of Excess Social Security Tax Withheld?
In general, you cannot opt out of paying Social Security tax. It is a mandatory tax in the United States, and most workers are required to contribute to the Social Security system. If you overpay Social Security tax due to having multiple jobs or other factors, you can potentially receive a refund when you file your federal income tax return.
The Bottom Line
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.