None of the taxes deducted from your paycheck are as unavoidable as those for Social Security. You must normally contribute throughout your working life, whether you are paid or self-employed. There are a few exceptions, which we’ll go through here.
- Most American employees must pay Social Security taxes for the duration of their employment.
- Members of some religious organizations and certain sorts of nonresident foreigners are exceptions.
- Employees employed before to 1984 may also be excluded because they contribute to a distinct retirement scheme.
Basics of Social Security Withholding
If you work for a company, you will most likely see a sum taken for FICA, or the Federal Insurance Contributions Act. FICA covers both Social Security and Medicare, the federal health insurance program for everyone over the age of 65.
As of 2021, your earnings up to $142,800 ($147,000 for 2022) are taxed at 6.2% for Social Security, and earnings beyond that amount are taxed at 1.45% for Medicare. Your employer matches such contributions and forwards the total to the government.
If you work for yourself, you must pay both half since you are both an employee and an employer. This is referred to as the SECA, or Self Employed Contributions Act, tax.
Who Doesn’t Have to Pay Social Security?
As previously stated, high-income earners pay just a percentage of their earnings. Their Social Security withholding ends for the year if their income reaches a particular amount. The salary base limit, as it is officially termed, varies every year.
The earnings cap for paying FICA taxes in 2021 is $142,800, up from $147,000 in 2022.
Members of Some Religious Groups
Some employees are free from Social Security taxes if they, their employer, and the sect, order, or organization to which they belong formally refuse to receive Social Security benefits for retirement, disability, death, or medical treatment. Members of such organisations must petition for the exemption using IRS Form 4029. There are many constraints, including:
- The organization must have existed since 1950.
- Since then, the organization must have supplied its members with a reasonable quality of life.
Certain Foreign Visitors
Although nonresident immigrants working in the United States must pay Social Security taxes on any income earned here, there are several exceptions. These mostly apply to foreign government personnel, students, and educators who are in the nation temporarily and have the proper form of visa. In rare situations, their families and domestic helpers may be excluded as well.
Some American College Students
American college and university students who work part-time at their institutions may also be eligible for a Social Security tax exemption. The employment must be dependent on the student’s full-time enrolment at the college or university, or half-time status if they are in the last semester or trimester of their studies.
“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,” says Alina Parizianu, CFP®, MBA, who was a financial planning specialist for MMBPB Financial Services in New York as of 2021.
Social Security tax is not levied on income beyond a particular threshold ($142,800 in 2021; $147,000 in 2022), however Medicare tax is levied on all income.
Pre-1984 Federal Employees
Civilian federal government workers employed before to 1984 are covered by the Civil Service Retirement System (CSRS), whereas those hired in 1984 or after are covered by the Federal Employees Retirement System (FERS) (FERS).Workers covered under the CSRS are exempt from paying Social Security taxes and will not get Social Security benefits. Those covered by the FERS, on the other hand, are members of the Social Security system and contribute to it at the present tax rate.
Certain State and Local Government Workers
Employees of state or local governments, including those employed by a public school system, college, or university, may or may not be required to pay Social Security taxes. They must pay Social Security contributions if they are covered by both a pension plan and Social Security. However, if they are entirely protected by a pension plan, they are not required to pay to the Social Security system.
The Bottom Line
So, when do you cease contributing to Social Security? The answer is nearly always “never” as long as you’re working. However, there are exceptions to every rule, and if one of those mentioned above seems to apply to you, be careful to investigate.
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