When do I stop paying social security tax? – 2021

“In this world, nothing can be said with certainty except death and taxes,” as Ben Franklin wrote, and among the taxes imposed on him, none is as inflexible as those that apply. towards the Federal Insurance Contributions Law (FICA), colloquially known as Social Security. Whether you are salaried or self-employed, paid an hourly wage or an annual sum, you must contribute throughout your working life. There are no exceptions, or they?

Here’s a quick refresher on the basics of Social Security: If you work for an employer, your gross wages are currently taxed at 6.2%. Your employer matches that amount and sends a total of 12.4% to the government. If you work for yourself, then you pay the entire 12.4% of your earnings in Social Security because, in effect, you are an employee and an employer; This is officially known as the self-employment tax. (For more on the latter, see Starting a Small Business: Tax.)

Who does not pay Social Security?

First of all: those who earn a lot of money. After an individual’s income reaches a certain level, his mandatory Social Security contributions cease at whatever amount is earned after that. Officially known as the “salary base cap,” the threshold changes every year. “The 2017 salary cap for paying FICA taxes has been increased to $ 127,200 from $ 118,500 in the prior year,” says Mark Hebner, founder and president of Index Fund Advisors, Inc., in Irvine, California, and author of “Index Funds: The 12-Step Recovery Program for Active Investors”. You do not pay taxes on any income earned beyond that amount.

Next: Certain religious groups. Members may be exempt from paying Social Security taxes if their sect, order, or organization also officially refuses to accept Social Security retirement or disability benefits, or after death (to survivors). Members of these groups must apply for the exemption by completing IRS Form 4029. Some restrictions apply:

  • The group must have been around since 1950.
  • The group must have provided its members with a realistic standard of living since then. hour.

Coming from abroad or going to school

Although nonresident aliens employed in the U.S. typically pay Social Security taxes on the income they earn here, there are some exclusions. For the most part, they apply to students or education professionals who live and work in the country temporarily and who have the correct type of visa. Their families and domestic workers may also be exempt.

American college and university students who work part-time at their alma mater may also qualify for a Social Security tax exemption. The work must depend on the student’s full-time enrollment in college or university. “Students who work in a school, college or university where the student follows a course of study are exempt from paying FICA taxes, as long as their relationship with the school, college or university is student, which means that the education is predominantly the relationship, not the job, “says Alina Parizianu, CFP®, MBA, Financial Advisor, ACap Asset Management, Inc., New York, NY

Enter Government Service (Sometimes)

Civilian federal government employees who started their jobs before 1984 are covered by the Civil Service Retirement System (CSRS), while federal government employees who were hired in 1984 or later belong to the Federal Employee Retirement System ( FERS). Employees covered by CSRS are not required to pay Social Security taxes, nor do they receive Social Security benefits. However, those covered by FERS are part of the Social Security system and contribute at the current tax rate.

State or local government employees, including those who work for a public school system, college, or university, may or may not pay Social Security taxes. When they are covered by a pension plan and Social Security, then they must make contributions to Social Security. But if they are protected only by a pension plan, then they do not have to contribute to the Social Security system.

All 50 U.S. states, Puerto Rico, and the Virgin Islands have Section 218 agreements with the Social Security Administration, which allows states to provide Social Security coverage to public employees if they so choose. Click here to contact your state administrator.

Foreign government employees working here in the US are often not required to pay Social Security taxes. That might apply even if you are a US citizen working for an embassy or consulate. However, this exemption does not apply to your spouse or servants.

What about older people?

If you are old enough to collect Social Security benefits but still working, you might think that you can say goodbye to paying into the Social Security fund. Sorry, but that’s not true. Those deductions keep coming out of your paycheck, regardless of your age, until you exceed that $ 127,200 base salary limit or until you quit. For more information, see Do I have to pay Social Security taxes on my earnings after full retirement age?

Unearned income, from interest on bonds or stock dividends, does not count, however; neither does the income come from a retirement savings account.

The Bottom Line

So 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 the ones mentioned above seems to apply to you, feel free to check it out.

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