Here are the workers who are exempt from paying social security taxes

You cannot overstate how important the financial security of Social Security is to millions of American retirees. Having that guaranteed retirement income brings stability and peace of mind for many, making Social Security one of the nation’s most important social programs.

For all the good Social Security does for Americans, that money doesn’t just come out of thin air. It’s a byproduct of millions of people paying Social Security payroll taxes over the course of their careers. However, not everyone has to pay these fees; some workers are exempt.

Let’s see who falls into that category and what it could mean for their retirement planning.

Image source: Getty Images.

How Social Security taxes work

Social Security payroll taxes are collected under the Federal Insurance Contributions Act (FICA). This tax is 12.4%, split equally between employers and their employees at 6.2% each. Self-employed workers are responsible for both the employer and employee share of the tax, so they pay the full 12.4%.

The good news is that not all income is subject to Social Security payroll taxes — it’s only up to a certain amount, called the “wage base limit.” The base salary limit in 2024 is $168,600, so any income above that is not subject to Social Security taxes.

It’s important to note that the basic salary limit usually increases annually (with a few exceptions), so someone might pay more in Social Security taxes in some years than in others. For perspective, here are the last five base salary caps before this year:

Data source: Social Security Administration.

Money collected through Social Security taxes is used to pay benefits to current retirees receiving Social Security benefits. It’s a cycle where current workers pay for current retirees with the expectation that they will be the beneficiaries when they retire.

Not all workers have to pay social security taxes

Most American workers are required to pay Social Security taxes, but there are some notable exemptions.

Student workers

Students attending school full-time are exempt, with the school offering part-time work contingent on the student remaining eligible and enrolled. This exemption also applies to students with study jobs. Yes not however apply to students working off campus.

Certain religious groups

Members of certain religious groups (such as the Amish and Mennonites) can claim a Social Security tax exemption if their religious beliefs oppose participation in government programs such as Social Security. When this happens, they must also give up their right to other benefits under the Social Security Act, such as hospital insurance benefits.

Employees of local and state public administration

Some state and local government employees who are covered by a public retirement plan are not subject to Social Security payroll taxes.

Foreign Government Employees

Foreign professors, scholars, professors, professors, interns, researchers, physicians, non-students, and similar workers temporarily present in the US are exempt from social security taxes on wages paid for services rendered in the US

People with income limitations

You are exempt from Social Security payroll taxes if you are self-employed and earn less than $400. For those earning above this, the amount subject to self-employment tax is 92.35% of your net self-employment earnings.

What to do if you are exempt from Social Security taxes

Not paying Social Security taxes means not getting Social Security (or Medicare). This makes it especially important to plan your retirement finances ahead of time to ensure you are not left out to dry and have a good financial footing in your golden years.

If you have access to a pension, make it a priority to contribute as much as possible without jeopardizing your livelihood. If you have a 401(k), be sure to put away a healthy amount and take advantage of perks like employer matches.

For those who don’t have access to either, retirement accounts like IRAs can be great options. Their relatively low contribution limits make them difficult to act as primary retirement accounts, but every little bit helps, and they can add up to respectable amounts over time.

Being exempt from paying Social Security payroll taxes may save you money in the beginning, but it can have major effects on the end of retirement. Make sure you are aware and plan accordingly.