One of the most disappointing things about seeing your paycheck is finding out how much of your money goes to taxes. Between income tax withholding, Medicare, and Social Security taxes, most people aren't happy to see how much less their take-home pay is than their gross pay.
The ability to avoid paying Social Security taxes can make a big difference in the size of your paycheck, but for the most part, it's hard to get out of paying them. Nevertheless, there are a few Social Security tax exceptions that can apply to keep you from having to see those payments taken out of your check. Let's take a closer look at these three Social Security tax exemptions with an eye toward seeing if they make sense for you.
1. Qualifying religious exemptions
Members of certain religious groups don't have to pay Social Security taxes. However, in order to qualify, those members have to waive any rights to benefits under the Social Security Act, including both traditional retirement benefits and hospital benefits. If someone has ever received benefits payable under Social Security -- or even if they've been entitled to benefits despite not having received them -- then they won't meet the requirements for a religious exemption.
Also, not every religious group qualifies for this exemption. The religious sect has to have been conscientiously opposed to accepting benefits under a private plan that makes payments due to death, disability, retirement, or medical care. Moreover, the sect has to make reasonable provisions for its members by providing food, shelter, and medical care for those who need it. Most importantly, the sect has to have made those provisions continuously since the end of 1950, so new religious groups won't qualify.
To claim the exemption, you have to file IRS Form 4029. The IRS will give final approval if you meet the qualifications upon review by the Social Security Administration.
2. Student employees of the school they attend
If you're a student and you work at the school you attend, you can sometimes qualify for a Social Security tax exemption. The key is that you have to get the employment opportunity because of your being enrolled, so programs like work-study and other jobs that are contingent on your continuing to be a student at the school do qualify.
Note that the exemption only applies to income you get from the job at your school. So if you have two jobs, income from the non-school job is still subject to Social Security taxes.
3. U.S. citizens who work abroad in certain countries
The U.S. has a number of international Social Security agreements with nations around the world, especially in Europe. These arrangements, often called "totalization agreements," ensure that workers for multinational corporations don't end up having to pay taxes for Social Security-like benefits both in the U.S. and in the foreign country in which they work. They also help those who split their careers in the U.S. and abroad get the full benefits they deserve, rather than having to get half-sized benefits in both countries.
Totalization agreements differ from country to country, but the general gist is that most workers pay into the system of the country in which they work. Therefore, if you're a U.S. citizen working in Canada, you'll typically pay taxes only to Canada and avoid paying U.S. Social Security taxes. Similarly, self-employed people pay taxes to the place where they reside, regardless of citizenship.
There are exceptions, though, for short-term work arrangements. For instance, under the Canadian agreement, those who work for a Canadian affiliate of a U.S. company for five years or less continues to get covered by the U.S. system. Other agreements have similar provisions.
Overall, these provisions don't generally get you out of paying taxes entirely. They do, however, keep you from getting taxed twice, which would be an even bigger insult.
Social Security is a valuable benefit, but the taxes people pay are often large. For those who qualify for these three exemptions, getting out of paying Social Security taxes can make their paychecks a little bit bigger -- even if it comes at the cost of receiving those benefits in the future.