As a rule, all wages you earn are subject to Social Security tax, but there are a few exceptions. Certain amounts, such as tuition assistance payments of less than $5,250 per year, are not considered income and therefore are exempt from Social Security. Other exemptions apply that depend on special circumstances that typically include tests that you and your employer must meet.
Child Employed by Parent
If you are under the age of 18 and work for a parent who operates a sole proprietorship, or for a partnership consisting of both of your parents, you are exempt from Social Security taxes. If your job does not involve a trade or business, such as working for your parents as their housekeeper, the exemption applies until age 21. If the parent-owned business incorporates, the exemption is lost.
Parent Employed by Child
There is no exemption from Social Security taxes for a parent who works for a child in the child’s business or trade. A child can employ a parent to provide domestic services, and, if certain qualifications are met, the wages are exempt from Social Security. The child who is the employer must have a child or stepchild who is under 18, or who cannot care for himself due to a physical or mental condition. This child or stepchild must live with the employer, who must be divorced, widowed, or residing with a spouse who cannot provide care due to that spouse's own physical or mental condition. The inability to provide care for the child, or for the child to care for himself, must have a duration of four consecutive weeks or more in quarter.
Some religions object to any form of insurance, including Social Security, on religious grounds. The federal government recognizes some organized religions as having the right to eschew Social Security. If both the employer and the employee belong to a qualified religion banning insurance, wages are exempt from Social Security taxes, but the exemption does not apply if only one party belongs to the religion.
Deceased and Disabled Workers
Employers sometimes owe payments to workers as of the date the worker dies. One example would be an annual bonus, paid in February but earned during the previous calendar year. When the employer makes the payment to the employee’s estate or beneficiary, the payment is exempt from Social Security taxes. The same principle applies for disabled workers who received payment after the year the employee became eligible for Social Security disability benefits. If the employee did not work for the employer in any capacity during the period covered by the payment, the earnings are not subject to Social Security.
Temporary Emergency Workers
At times, a disaster may require government agencies to hire temporary workers to respond to the disaster. Wages paid to these workers may be exempt from Social Security taxes. The workers must be hired due to a specific emergency that could not have been predicted; there must be no plan to hire them permanently; and the emergency must be related to an earthquake, fire, storm, flood or similar situation.
Students who provide domestic services for college sororities, clubs or fraternities are exempt from Social Security tax. If you attend classes at a private college or school and work for the school or one of its nonprofit auxiliaries, your wages are typically not subject to Social Security. If you work for and attend a public university or school, your wages may be exempt from Social Security unless you are also receiving academic credit for your work. Student nurses are normally exempt if they work part-time at a hospital, their wages are nominal, and the work is incidental to their training.