Social Security is about more than just providing you with some income so you'll be able to retire one day. The Social Security Administration also provides disability benefits, death and survivorship benefits and income to those who would otherwise have very little. As of 2009, the last year for which comprehensive data is available, the Social Security Administration had paid out a staggering $13.8 trillion in benefits since its inception back in 1937.
Some religious groups and government employees don’t have to contribute to Social Security, but the vast majority of American workers do, and they can't collect benefits if they don't.
Understanding Where The Money Comes From
All this money paid out in benefits has to come from somewhere, so the Social Security Administration collects 6.2 percent of most workers’ wages from each paycheck. Employers must match that and pay 6.2 percent as well. But self-employed individuals have to pay the whole amount themselves because they're both the employer and the employee, generally making estimated tax payments quarterly.
And keep in mind that these percentages don’t include the Medicare tax, the other component of the Federal Insurance Contributions Act commonly referred to as FICA taxes. Medicare is an additional 2.9 percent split by the employer and the employee.
Some isolated groups of Americans are exempt from paying into Social Security, but there’s a downside to this. If you claim an exemption from paying Social Security taxes, you won’t be eligible to collect benefits when you retire or if you become disabled.
Jobs That Don’t Pay Into Social Security
The rules have changed somewhat over the years. It used to be that jobs with religious, charitable, nonprofit and educational organizations received a Social Security exemption, but that all changed in January 1984. And nonprofits and charities must now contribute to employees’ Social Security taxes just like other employers. Other jobs might exempt employees under certain circumstances, and some exemptions are based on factors other than what you do for a living.
Qualifying Religious Social Security Tax Exemption
Certain religious organizations are morally opposed to accepting anything in the way of benefits from the government – the concept goes against their faith. They take the position that they provide perfectly well for their members without assistance, and that’s okay under federal law – as long as they do so.
This isn’t to say that you can just tell the Social Security Administration that your congregation will take care of you in the event of trouble and skip Social Security tax withholding from your paychecks – several rules apply.
First, the religious organization you belong to must make the short list of those that are officially recognized by the federal government for taking care of their own. The organization must have been in existence since Dec. 31, 1950, and it must have consistently provided for its members during that time. Mennonites and the Amish are good examples. You are not able to just launch a new faith and say you’re opposed to accepting help from the government so you can claim a Social Security exemption.
The organizations themselves must apply for this exemption by filing Form 4029 with the government, and even then, some of their members might not be exempt if they ever qualified for any type of Social Security benefits, even if they never collected them. Members must file Form 4029 as well to claim the exemption and doing so acts as a forever waiver of ever receiving any type of Social Security benefits in the future.
So what if you’re not a member of one of these faiths but you work for a qualifying religious organization? You’ll have to pay Social Security tax on your earnings over $100 a year, and you have to pay both halves just as you would if you were self-employed because the organization is exempt.
Police Officers and Other Government Workers
Do police officers get Social Security exemptions? Sometimes, but this exemption is particularly tricky. It’s not an across-the-board Social Security exemption.
Back when President Roosevelt first signed the Social Security Act in August 1935, state and local government workers were exempt from paying Social Security taxes because their jobs offered other retirement benefits in lieu of Social Security – think public pension plans. But the lines began to blur a little as more and more of these workers made private arrangements with the Social Security Administration to pay in because some of those other retirement benefits weren’t so great.
Some police officers and other government workers – including public school teachers – do pay into Social Security, but others do not. Beginning in 1991 and as the system is currently set up, those who are not covered by a public pension plan or similar retirement system plan can pay into and are covered by Social Security. Those who could have access to public retirement plans can pay in and later collect Social Security as well, but they require special authorization from their employing government under the Federal-State Section 128 Agreement.
This agreement effectively indicates that some of the state or local government's employees can pay into and eventually collect Social Security benefits. The state, county or municipality doesn’t have to do this for each and every worker who elects Social Security benefits rather than the offered retirement plan. Rather, the exemption applies to certain positions within the government.
And not all states jumped on the Section 128 bandwagon for their teachers, leaving many of them out in the cold. No, teachers don’t have to pay into Social Security because they typically have pensions, but they must often work in their school system for 30-plus years to achieve decent retirement benefits when the time comes. This is the case in 15 states plus the District of Columbia.
These states can opt into Section 128 at any time if they want to, but they can’t back out again after they’ve made this election.
Citizenship and Social Security
If you’re not a U.S. citizen – you’re a non-resident alien, neither a citizen nor a resident of the country – you might qualify for a Social Security exemption. It all comes down to what type of visa you have.
If you’re working in America as an educator, you’re probably exempt, and if you’re here on a student visa and attending school at least part-time, this would normally provide you with an exemption as well. Your family members and household staff who work for you might be exempt as well if you’re an educator.
Otherwise, if you work in the U.S., you must pay the Social Security tax, even if you’re a non-resident alien. And resident aliens must pay Social Security taxes as well.
If you work for a foreign government on American soil, you don’t have to pay into Social Security, but you would have to work specifically for the government, not simply for a foreign business or company.
If You’re a Working Student
Some students can dodge paying the Social Security tax as well, but timing is everything. If you’re already enrolled in a college or university and you subsequently take a job with that college or university, you’re exempt, at least as long as you continue to be enrolled there as a student.
But it can’t happen the other way around. You can’t work at the school then decide to use your job-related benefits to enroll in classes. Your primary relationship with the learning institution must be as a student and the job you took must have stemmed from that relationship. This covers medical residents as well, although the Internal Revenue Service has argued that they should not be exempt. Fortunately for these students, the court didn’t agree.
This exemption only covers your job with the school you’re attending. If you also hold down a second or third job elsewhere, those earnings are subject to Social Security tax.
Understanding Whether Congress Members Pay
A persistent rumor exists that members of the U.S. Congress are exempt from paying Social Security tax, but it’s just that – a rumor. There’s no political exemption from this tax. The president pays Social Security taxes on his earnings and so does the vice president. Federal judges do, too.
But the rumor does have some basis in fact because it wasn’t always this way. Prior to 1984, federal government employees – including legislators – were instead covered by the Civil Service Retirement System. So they did not have to pay into, nor were they eligible for, Social Security benefits prior to that time. Like other government workers, they had other retirement plans in place.
They haven’t been exempt since that time, however, because federal workers have not been able to opt into the Civil Service Retirement System since Jan. 1, 1984. Of course, any Congress member who’s been serving consistently since before 1984 would still have Civil Service Retirement System coverage, so he would be exempt from Social Security. But anyone elected after that time must pay Social Security taxes.
Some Income Is Exempt
The federal government offers one more Social Security exemption – sort of. Not every dollar you earn is subject to the tax, but you have to earn a fairly good income to qualify.
Social Security taxes are subject to something called a wage base. You must only pay the tax on wages and income up to this point. Beyond that, your earnings are tax-free, at least from Social Security taxes. The wage base is adjusted incrementally from year to year to keep pace with inflation. As of 2018, it’s $128,400 annually. And no, the same rule does not apply to Medicare, the other component of FICA taxes.
If you earn $128,401, that additional dollar won’t be taxed for Social Security. Of course, up to this point, you and your employer would each have paid $7,960.80 in Social Security taxes for a total of $15,921.60. And this rule applies per year. It’s not based on your lifetime earnings. If your earnings hit $128,400 in mid-December, you’d get a break for a couple of weeks until year’s end, but the tax would kick right back in again on Jan. 1.
Midway through 2017, the Social Security Administration announced that the 2018 wage base would be $128,700. Then, on Nov. 27, 2017, it changed that figure. It issued a press release stating that the number was actually $128,400. So if you’ve heard conflicting reports of just how much income you have to pay Social Security tax on in 2018, this is why.
- Investopedia: Who Is Exempt From Paying Social Security Taxes?
- TurboTax: Who Is Exempt From Paying Social Security Tax?
- Social Security Administration: Nonprofit or Religious Organizations
- TeacherPensions.org: Why Aren’t All Teachers Covered by Social Security?
- Financial Web: Am I Exempt From Social Security Tax Withholding?
- Anderson Legal, Business and Tax Advisors: Who Doesn’t Have to Pay Social Security Tax?
- Social Security Administration: Police Officers and Firefighters
- Thomson Reuters: Social Security Wage Base Increases to $128,700 in 2018
- Social Security Administration: Frequently Asked Questions
- Faegre Baker Daniels: SSA Changes Update of Social Security Wage Base for 2018