Updated June 11, 2020
Virtually all workers are subjected to payroll taxes that are used to support both Social Security and Medicare. However, there are exceptions to this rule. Here is a quick rundown of the selected groups and why they are not necessarily required to pay into the system.
4 Social Security Tax Exemption Groups:
Under specific conditions, members of some religious groups have the right to exempt themselves from Social Security tax. However, to do so, they must conscientiously oppose accepting any retirement or healthcare benefits via the private plan. Furthermore, the group must have an established record of providing comparable provisions for shelter, medical care, and food since at least 1950. Examples of groups meeting these guidelines include the Amish and the Mennonites.
Even if a group satisfies the requirements, they are not automatically granted tax exemption. A member must formally claim it by filing an IRS Form 4029 with the Social Security Administration by a member. Once granted, though, members formally waive any right to benefits that Social Security provides in exchange for their exemption.
When Social Security was first instituted, government workers (both state and local) were not covered because they typically had their own private retirement plans. Over the years, though, many workers ended up getting coverage either through special arrangements with the Social Security Administration or because they were not covered by a pension system considered equivalent to Social Security. However, there are still government employees not required to pay Social Security tax. The reason they don’t contribute is because they are covered by public pension plans, which accept their contributions from paycheck deductions.
Select Foreign Workers
Both foreign and domestic workers are subject to Social Security payroll tax; working in the United States alone is enough to qualify foreign workers for payroll tax contributions. There are exceptions though for foreign workers. First, foreign government employees are exempt if they are working for their governments in an official capacity. Second, international students and education workers with certain temporary visas are also permitted not to pay tax on their earnings related to specific activities.
Children Employed by Parent’s Business
Kids under age 18 aren’t required to pay Social Security tax if they are family business employees. Besides, family-employed workers, child employees who do domestic work (i.e. housekeeper, babysitter, gardener, etc.) also aren’t required to pay Social Security tax as long as they’re under age 21.
While avoiding Social Security payroll tax allows you to enjoy more take-home money, it also hurts you by lowering your retirement benefits over time. If you are taking a position that does not require Social Security contributions, bear in mind the effect it will have on you over time. If you are interested in supplementing your retirement through other means, be sure to start doing your research now. The team at Anderson can help you by providing you both information and options to get started. Contact us today for a free appointment.