Sneaky Social Security Tax Exemptions You May Be Missing

The role of Social Security benefits is clear in American society. Today, virtually all Americans who participate in the workforce will be entitled to benefits when they retire, as well as disability coverage earlier in life. The average Social Security benefit check in January 2024 came out to $1,907, and a typical benefit for most workers will replace about 40% of their preretirement income. This is nothing to scoff at, but there's more to the story than just working and retiring. For one thing, Americans looking to maximize their Social Security checks might consider working an extra few years to begin drawing benefits after they reach full retirement age. Bonus payout rates apply to the years between 67 and 70, allowing you to gain a bit more financially in all regards.

More importantly, it's worth noting that the Social Security program isn't a monolith. While most Americans will pay into it and receive benefits later in life, this isn't the case for everyone. Earning 40 credits typically is done over the course of 10 regular working years. So what happens to people who aren't here working long enough to become eligible for this benefit? Well, that's where the exemption system comes into play. There are a few key groups that don't have to pay into the program because they won't be taking anything out later. But there are also some quirky additions to this irregular interaction with Social Security.

The first group that benefits from an exemption in paying the 6.2% in Social Security tax and 1.45% Medicare rate includes foreign visitors to the United States who are earning paychecks. Foreigners who teach on a college campus, for instance, may be temporarily living and working in the United States with the intention of returning back to their home country when a contracted timeline for conducting research or lecturing students expires.

Another group involves foreigners who are employed by their own governments in the United States. Embassy employees, for example, are earning their salaries in the U.S., and are subjected to American tax regulations. Both of these specific groups, however, have no intention of building a long term life in the country, and therefore won't be taking anything out of the Social Security pot. The federal government has made a provision for these kinds of special cases, allowing them to exempt their income from Social Security contributions since they won't be receiving Social Security benefits later on. An exception to this treatment comes when their spouses take up work in a more routine manner. An embassy employee's spouse or child might be legally employed by a separate business — like a restaurant near their home. Those jobs kinds of jobs do not qualify for the exemption.

University employees run the gamut. Students furthering their education often take up work on campus to help support their financial needs, and these kinds of jobs can sometimes see their paychecks exempted from Social Security taxes. Foreign students with the right to work fall into the same category as nonresident aliens who work in embassies and other government positions, as well as the foreign university professors they may be taking classes with.

Students who are temporarily in the United States can benefit from this bump in take home pay, but it might be worthwhile for some to forego that exemption when they complete their taxes. Foreign students who have designs on building a life in the U.S. after completing their degree will likely want to continue working. Exempting their earnings today can hurt their Social Security benefit later on in life. Foreign students who are planning to marry an American classmate they've fallen in love with, and others who are hoping to find employment after graduation might be better off paying into the program and getting a jumpstart on the process of meeting eligibility requirements. Other students – like those engaged in PhD programs, might ultimately spend ten years in the U.S. while completing their research. Working throughout that time and paying into the Social Security program may ultimately grant them eligibility for benefits, even if they spend the rest of their adult life back in their home country.

One quirky exemption that many Americans may not be familiar with is granted on religious grounds. The eligibility requirements are quite structured, though so it's not possible to simply declare your own personal "religious opposition" to the use of Social Security benefits and expect the IRS to waive your contributions. Specifically, sectarian groups like the Mennonites and Amish communities have long held a specific and pervasive opposition to government aid.

People in a community that can exempt themselves from Social Security taxes must be members of a recognized religious group "that has established tenets and teaching by which you are conscientiously opposed to accepting benefits under a private or public insurance plan." These groups must have been in existence continuously since 1950, so it's also not possible to concoct your own religious foundation for exemption under this rule today. This coverage applies to earnings generated through self-employment and payments received from organizations that have also received this exemption — so essentially a person living and working within a community that rejects benefits of this nature. The few people who are exempted won't pay into the Social Security program, and won't receive benefits when their age might otherwise enable them to begin drawing a check.

Lastly, high earners find some of their wages exempted from Social Security tax. There's no silver bullet to get out of paying into the program for the vast majority of Americans. However, if you earn more than the cap on taxable income for Social Security purposes, the remainder of your salary won't be assessed the additional 7.65% tax for Social Security and Medicare. In 2024 the maximum taxable figure was $168,600, and in 2025 that value is raised to $176,100.

As a result, those earning substantial salaries have a portion of their earnings protected from this component of state and federal taxes. So going back to school to change careers to one of the highest paying jobs available might help you save a bit on your annual taxes! Of course, just 'earning more' isn't exactly a viable solution for the majority of Americans, and some have called for abolishing this tax limit in order to help maintain the program's long term financial viability. Effectively, high earners are paying less in taxes because of this limit. However, one potential benefit of the cap comes in the form of maximum payout figures. Because the contribution value is capped, so too is a beneficiary's payment figure. The program was designed to help everyone afford retirement, and if extreme earners were able to draw out gigantic Social Security checks, then it might ultimately endanger the project's ability to raise tens of millions of Americans above the poverty line as they age.