Do i have to pay into social security

Workers and employers pay for Social Security. Workers pay 6.2 percent of their earnings up to a cap, which is $127,200 a year in 2017. (The cap on taxable earnings usually rises each year with average wages.) Employers pay a matching amount for a combined contribution of 12.4 percent of earnings. Self-employed persons pay both the employee and employer share for a total 12.4 percent. (Half of this contribution, the employer share, is a deductible business expense for income tax purposes.) Also, higher-income Social Security beneficiaries pay federal income taxes on their benefit income, and these taxes help pay for Social Security.

During 2011 and 2012, the premiums that workers pay for Social Security protection were temporarily reduced from 6.2 percent to 4.2 percent. The lost revenue from this “payroll tax holiday”—$103 billion in 2011 and $114 billion in 2012—was made up from the government’s general fund.

In 2015 the average worker made $48,099 a year, according to the Social Security Administration. This worker and his or her employer will each pay $2,982 this year. Approximately 6 percent of all workers will earn more than the $127,200 tax cap. Earnings above the cap now account for 18 percent of the aggregate pay of all workers who pay into Social Security.

An additional tax on workers’ earnings pays for Medicare hospital insurance. This is a 1.45 percent levy, paid by workers and employers each on all wages, for a total tax of 2.9 percent. Self-employed persons pay 2.9 percent.

Examples: Jon Smith makes $50,000 in 2017, and Jane Doe makes $120,000 for the year. Jon pays $3,100 for Social Security (6.2 percent of $50,000) and $725 for Medicare (1.45 percent of $50,000) for a total of $3,825 for the year. His employer pays the same amount. Jane pays $7,886 for Social Security (6.2 percent of the 2017 maximum wage base of $127,200) and $1,740 for Medicare (1.45 percent of $120,000 salary), for a total of $9,626 for 2017. Her employer pays the same.

The vast majority of American workers pay in to the country’s Social Security system through payroll taxes. These taxes provide retirement and disability income, as well as death and survivorship benefits. Still, not every worker is required to pay them. Knowing who is exempt from Social Security taxes can shed some light on what not paying them can mean for your future retirement. If you need help organizing your retirement savings, a financial advisor can help you put together a financial plan.

How Much Are Social Security Taxes?

Currently, the Social Security tax is 6.2% for employees, which is paid through payroll withholding. For Medicare, the employee portion of the tax is a combined 1.45%. Note that individuals earning more than $200,000 (and married couples filing jointly making over $250,000) pay an additional 0.9% in Medicare taxes.

So together, the Social Security and Medicare programs make up the Federal Insurance Contributions Act (FICA) tax rate of 7.65%. Remember, though, that both employers and employees pay this tax, meaning its total adds up to 15.3%. On the other hand, self-employed workers have to cover the entire 15.3% FICA tax themselves.

Five Groups Exempt From Social Security Taxes

Nearly every American worker – as well as their employer – is required to pay Social Security and Medicare taxes, including the self-employed. If you don’t pay into the system when you work, then you can’t collect the income benefits later in life. And for many older Americans who haven’t saved enough on their own for retirement, Social Security may be the only money they have to rely on.

However, there are certain groups of taxpayers for which Social Security taxes do not apply, including:

1. Religious Organizations

Members of some religious groups can be exempt from paying in to Social Security under certain circumstances. For starters, they must belong to a recognized religious sect that is conscientiously opposed to accepting healthcare or retirement benefits under a private plan.

In addition, these organizations must have an established record, going back to 1950, of providing their members reasonable provisions  for food, shelter and medical care. Qualifying religious sects include Mennonites and the Amish.

2. Students and Young Workers

Currently enrolled students who work at their university can be exempt from Social Security taxes. The exemption, though, only covers income earned from that job; any earnings from a second job off-campus will be subject to all taxes. The student exemption covers medical residents as well. The exception to the exemption? University employees, even those who later enroll at the college where they work.

Children under 18 who work for their parents in a family-owned business also do not have to pay Social Security taxes. Likewise, people under 21 who work as housekeepers, babysitters, gardeners or perform similar domestic work are exempt from this tax.

3. Employees of Foreign Governments and Nonresident Aliens

People living in the U.S. who aren’t citizens or legal residents are classified as nonresident aliens. Most of this group is required to pay in to Social Security, even if they work in the U.S. for a foreign company.

The exceptions include foreigners here on temporary visas, such as professional educators and scholars, and certain classes of international students who choose to work while in the U.S.

Those employed by foreign governments are also exempt from Social Security taxes as long as their role includes conducting official business on that government’s behalf. However, that person’s family and domestic helpers, like nannies, would be on the hook for ponying up Social Security taxes (unless they also work for the same foreign government).

4. Workers in the Public Sector

When the Social Security program began, local and state employees were usually already paying in to government pension plans and so they weren’t taxed again for Social Security.

These days, most public employees have Social Security coverage — and thus pay into the system out of their paychecks — but there are still a few exceptions. These include public workers who participate in a government pension plan comparable to Social Security.

In addition, federal workers, including members of Congress, who have been serving consistently since before 1984 are covered under another retirement plan, so they’re also exempt from Social Security taxes.

5. High-Income Earners

High-income employees are not technically exempt from Social Security taxes, but part of their income is. In 2022, every dollar of taxable income someone makes above $162,000 ($158,500 in 2021) will effectively be exempt from Social Security taxes.

For example, someone making a taxable income of $300,000 in 2022 will pay Social Security taxes on 6.2% of just $162,000, which comes out to $10,044. Their employer then pays that same amount in matching Social Security taxes. A person who makes exactly $162,000, on the flip side, ends up paying the very same amount in Social Security taxes.

Bottom Line

Although not paying into the Social Security program can increase your take-home pay, it can also lead to less supplemental income in retirement. If you have the option to take an exemption from Social Security, make sure you consider the short- and long-term implications of not doing so, especially when it comes to navigating your post-working life. As always though, planning ahead for your retirement expenses and income is of paramount importance.