Do federal employees pay social security tax

Just like the income tax, most people can’t avoid paying Social Security taxes on their employment and self-employment income. There are, however, exemptions available to specific groups of taxpayers. If you fall under one of these categories, you can potentially save a significant amount of money. However, if you do take advantage of the exemption, you will be ineligible to receive any of the benefits offered by Social Security.

Qualifying religious exemption

Members of certain religious groups qualify for the exemption, but it must be a recognized religious sect opposed to accepting Social Security benefits. Some of those benefits include payments during retirement and payments in the event of a disability or at death. In addition, the religious group must have existed as of the end of 1950 and must have continuously provided its dependent members with a reasonable standard of living since that time.

The exemption isn’t automatic; you must apply for it by completing Form 4029. The exemption is unavailable if you’ve ever been eligible to receive benefits under the Social Security program regardless of whether you actually received the benefit or not.

Nonresident aliens

Individuals who don’t possess United States citizenship, or aren’t legal residents are classified as nonresident aliens. A nonresident alien working in the U.S. usually pays Social Security tax on any income made here, even if he works for a foreign company.

There are some exceptions. Foreign students and educational professionals in the U.S. on a temporary basis don't have to pay Social Security taxes. Nonresidents working in the U.S. for a foreign government are exempt from paying Social Security taxes on their salaries. Their families and domestic workers can also qualify for the exemption. Many other categories of nonresidents are eligible for the exemption, but, in all cases, the determining factor is the type of visa the nonresident possesses.

Temporary student exemption

Students working for the same school they’re enrolled at may be temporarily exempt from paying Social Security taxes. However, only students who obtain employment because of their enrollment qualify. In other words, if you work full-time in the registrar’s office of a university, and take advantage of the tuition-free enrollment the university offers its employees, you don’t qualify. If you attend school full-time, and the university offers you a part-time job that’s contingent on your continued enrollment, you do qualify. That only applies to the wages you earn at the university, not wages you earn from other employers.

Foreign government employees

Employees of foreign governments are generally exempt from paying Social Security taxes on income paid to them as a result of their official responsibilities. As long as the foreign government employee is working in an official capacity on official business related to his employment, he does not have to pay Social Security on his pay. The Social Security exemption does not apply to servants of employees of a foreign government or the official’s children or spouse unless they are also employed by the foreign government.

Income limitations

Taxpayers ineligible for these Social Security tax exemptions may be happy to know the tax is imposed only on a maximum amount of income per year. Although not an “exemption” per se, the income you earn in excess of the applicable maximum for the year is effectively exempt from Social Security tax.

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Does everyone get Social Security? No. Still, American workers who will not qualify for Social Security retirement benefits are relatively rare. If you are one of them, it’s important to know, so you can secure other sources of income or determine whether it’s possible for you to become eligible. What follows are the eight most common categories of workers who lack Social Security eligibility and thus are not entitled to benefits.

Key Takeaways

• Some American workers do not qualify for Social Security retirement benefits.
• Workers who don't accrue the requisite 40 credits (roughly 10 years of employment) are not eligible for Social Security.
• Some government and railroad employees are not eligible for Social Security.
• American expatriates retiring in certain countries—and some retired immigrants to the U.S.—can't collect Social Security benefits.
• Divorced spouses married for fewer than 10 years cannot claim benefits based on the earnings of their ex-spouse.

1. Workers With Too Few Social Security Credits

Can you get Social Security if you never worked? No, because a minimum requirement to collect Social Security retirement benefits is performing enough work. The Social Security Administration (SSA) defines enough work as earning 40 Social Security credits. More specifically, in 2022, an individual receives one credit for each $1,510 in income, and they can earn a maximum of four credits per year. So, 40 credits are roughly equal to 10 years of work.

If you earn the federal minimum wage of $7.25 an hour, then you’ll need 208.28 hours of work to receive one credit toward Social Security. By working just 17 hours a week for 50 weeks at this wage (allowing yourself a two-week vacation), you can earn the maximum credits per year. That means even those who work part-time so they can attend school or care for a child—or those who work part-time because they cannot find full-time work—can amass Social Security credits without too much trouble.

Earned credits are accrued over a person's lifetime and never expire, so anyone who has left the workforce with close to 40 credits might consider going back and doing the minimum additional work they need to qualify. You can check the number of credits you have so far by opening a Social Security account on the Social Security website and downloading your Social Security statement.

2. Workers Who Die Before Age 62

The minimum age to start claiming Social Security retirement benefits is 62. If someone dies prematurely, then dependent children and spouses may be entitled to survivor benefits. At age 60, for example, widows and widowers can begin receiving Social Security benefits based on their deceased spouse’s earnings record (disabled spouses can start at age 50). Terminally ill patients can apply for Social Security Disability Insurance (SSDI), which means they will still receive some benefit from their contributions to the system.

What if you are terminally ill and reach the minimum retirement age? If you are single, claiming right away may be the most sensible strategy. However, if you have a spouse, postponing may provide your spouse with greater benefits. The spousal benefit can be as much as 50% of the worker's benefit, depending on the spouse's age at retirement and if the spouse is eligible for retirement benefits based on their own earnings record. The Social Security Administration has an online calculator that helps determine benefits for spouses.

If you do not qualify for Social Security payments, you need to ensure that you have sufficient income to support your lifestyle in retirement.

3. Certain Divorced Spouses

Divorced people can be entitled to collect Social Security benefits based on the earnings of an ex-spouse. Often these are full-time homemakers or stay-at-home parents who didn’t work. To get the benefits, they must be single, 62 or older, and have earned less in benefits based on their own work record than that of their ex. If the marriage lasted for fewer than 10 years, they are not eligible to claim any spousal benefits.

4. Workers Who Retire in Certain Foreign Countries

U.S. citizens who travel to—or live in—most foreign countries after they retire usually can receive Social Security benefits. However, if that country is Azerbaijan, Belarus, Cuba, Kazakhstan, Kyrgyzstan, Moldova, North Korea, Tajikistan, Turkmenistan, or Uzbekistan, then the government will not send them Social Security payments. Exceptions may be available in all of these countries except Cuba and North Korea. The government’s Payments Abroad Screening Tool is an easy way to check if you will be able to continue receiving Social Security benefits while living abroad or if restrictions will apply.

5. Certain Noncitizens

Certain noncitizens who have earned 40 Social Security work credits in the United States are eligible to receive Supplemental Security Income (SSI) benefits. Immigrants who do not have enough U.S. credits but who come from one of the 30 countries with whom the United States has Social Security agreements, also known as “totalization agreements,” may qualify to receive prorated benefits.

These benefits are based on their work credits earned abroad combined with their U.S. work credits, an arrangement that is particularly helpful for older immigrants who are not likely to accumulate 10 years of work in the United States before retiring. Workers who have not earned at least six U.S. credits, however, cannot receive payments under totalization agreements.

6. Certain Government and Railroad Employees

There are some jobs that don’t pay into Social Security. Federal government employees hired before 1984 are included in the Civil Service Retirement System (CSRS), which provides retirement, disability, and survivor benefits. These workers did not have Social Security taxes deducted from their paychecks and thus are not eligible to receive Social Security benefits.

They may still qualify if they have earned benefits through another job or a spouse. However, in these cases, CSRS pension payments may reduce Social Security payouts. Government workers who are covered by the Federal Employees Retirement System (FERS), which replaced CSRS, are eligible for Social Security benefits. 

Most state and local employees have Social Security protection under a federal Section 218 agreement. However, some of these workers—including those who work for a public school system, college, or university—will not receive Social Security benefits if they do not pay Social Security taxes. They generally receive pension benefits from their employers.

Railroad Employees

Some railroad employees are not covered by Social Security. Workers with at least 10 years of service in the railroad industry (or at least five years after 1995) have their retirement benefits covered through the Railroad Retirement Board. The RRB is an independent federal agency that administers various employment benefits for railroad industry employees and their families.

Workers with fewer than 10 years of service in the railroad industry (or fewer than five years after 1995) do not receive retirement benefits through the RRB. Instead, their accounts are transferred into Social Security and they become eligible for Social Security benefits after meeting Social Security benefit requirements.

$3,627

The most that someone reaching full retirement age in 2023 can get in Social Security benefits per month.

7. Self-Employed Tax Evaders

Self-employed workers pay self-employment tax to cover both their own and the employer’s portion of Social Security contributions. The tax is calculated and paid each year when self-employed workers file their federal tax returns. Those who do not file tax returns do not pay Social Security taxes, unlike employees whose employers withhold and remit their Social Security taxes from each paycheck.

If you have no record of paying into the system, you will not receive payouts. If you have not reported income and evaded taxes for a lifetime, then you have no right to Social Security benefits.

8. Certain Immigrants Over Age 65

Retired people who immigrate to the United States will not have the 40 U.S. work credits that they need to qualify for Social Security benefits. One way to rectify this problem is to earn six work credits in the United States and receive prorated U.S. benefits combined with prorated benefits from their former country under a totalization agreement. This solution makes sense for workers who also do not have enough benefits in their home country to qualify for that country’s equivalent of Social Security payments.

Older immigrants who do not qualify for U.S. Social Security and whose countries’ laws allow them to receive benefit payments while residing abroad can claim their Social Security or pensioner’s benefits while living in the U.S.

The Bottom Line

Almost all retirees in the United States receive Social Security benefits when they stop working—assuming they’ve reached retirement age, of course. However, those who have spent little time in the U.S. workforce, whether due to full-time homemaking or working abroad, may not qualify under their own names. (Some could qualify for spousal benefits if their spouse qualifies for payments.) Some government workers are also not eligible. Fortunately, some people who do not currently qualify can still find a way to do so.

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