Tired of Paying Social Security and Medicare Taxes? Here’s How You Can Opt Out.

Corey —  April 13, 2010 — 7 Comments

       A couple weeks ago a friend asked me how he could get out of paying Social Security taxes. He feels like there won’t be any Social Security for him when he retires, so he’d rather just save up the money himself. I had done some research on the same topic a couple years ago and I brushed up on it again recently. Here’s how you can get out of paying Social Security and Medicare taxes.

IRS Form 4029

       IRS Form 4029 is an application for exemption from Social Security and Medicare taxes and a waiver of benefits from those programs. However, there are a few catches:

  1. You must be a member of a religious group that teaches against insurance (for conscientious reasons – not because they believe it won’t be around to pay you benefits). This group must also provide a reasonable level of living for its dependent members. Finally, it must have existed continuously since December 31, 1950. It doesn’t matter if you think your group fits the description. It must be approved by the Social Security Administration. Generally, only the Amish and very conservative Mennonite groups will qualify for this specific form. I’m part of a Mennonite church and I don’t think we’d even qualify (unless the SSA knows little about the differences among Mennonites).
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  3. You’re giving up all rights to any benefits you’d be entitled to under Social Security or Medicare. So you better be ready to replace its purpose in terms of life insurance, retirement income, disability insurance, and medical insurance. While that’s no small task, my rough calculations show you’d probably be better off doing those things yourself if you’re young and make more than $30,000/year.
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  5. This exemption only applies to your self-employment earnings and earnings from employers who also qualify for this exemption. Qualifying employers will be limited to individuals, partnerships, some LLCs, and religious organizations. If you work for a corporation (C or S), this won’t do you much good. Unless, of course, you’re paid as an independent contractor and issued a Form 1099-MISC, in which case you’d be filing Schedule C and be subject to self-employment taxes.
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  7. As soon as you are no longer eligible, this exemption ends. So if you leave your religious group or if the SSA determines your group no longer qualifies, you’re back to square one. However, you can become eligible for Social Security and Medicare benefits once the exemption no longer applies.



       Basically, not many people will qualify and the exemption is fairly limited (in terms of compensation affected). However, there is another form that serves a similar purpose, but it is even more limited than this one.

IRS Form 4361

       IRS Form 4361 is an application for exemption from self-employment taxes for ministers, members of religious orders, and christian science practitioners. Again, there are quite a few limitations:

  1. You must be an ordained, commissioned, or licensed minister for a church, a christian science practitioner, or a member of a religious order who has not taken a vow of poverty (like people who work for a monastery or convent but are not monks or nuns). That’s a narrow list.
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  3. You have to be conscientiously opposed or have religious beliefs that are opposed to receiving benefits from public insurance based on the performance of your duties as a minister, christian science practitioner, or member of a religious order.
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  5. This exemption only applies to your earnings in that role. If you have another job, you’ll still have to pay Social Security and Medicare taxes on those earnings and you’ll be eligible for benefits based on those earnings.



       Again, this exemption is very limited in terms of who qualifies and in its scope.

The Rest of Us Will Just Have to Deal with It

       There are no other ways to remain a U.S. Citizen and not pay Social Security and Medicare taxes unless you’re willing to move out of the country. But the real question is whether Social Security will actually run out of benefits by the time today’s young people retire. Everyone bases the idea that Social Security won’t be around on the intermediate projection in the 2008 Trustees Report. But you need to realize three things:

  1. These are projections based on assumptions. There are no guarantees. People are estimating what they think will happen and running scenarios based on numerous variables. There is much room for error in these calculations.
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  3. Even under these projects, Social Security can still pay 75-78% of scheduled benefits. That’s not great news, but it’s not the end of Social Security either.
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  5. The “fixes” needed are relatively simple and not very drastic either. An increase in the Social Security tax, delay in retirement age, reduction in benefits, or a combination of all three could easily change the projections. In fact, a combination of all three solutions would probably be quite beneficial and have only a slight impact on individual situations.



       With that said, I’m still not a huge proponent of the system and I’d gladly save on my own if I had the option. But Social Security was put into place partly because people don’t save on their own. If the current state of personal finances in America is any indication, we’d likely have millions of poverty-stricken elderly due to a lack of financial discipline.

Corey

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Corey is currently pursuing a Master of Arts degree in religion. While he enjoys learning and writing about Christianity, another one of his new passions is writing about personal finances in order to help others make wise decisions with their money.

7 responses to Tired of Paying Social Security and Medicare Taxes? Here’s How You Can Opt Out.

  1. Are you crazy, raise the tax already, it’s already more than twice the original maximum amount. You must be rich to think that raising the tax more wont affect the common man that much. I already pay more in FICA than I do in income tax, and that is still way to much. The more we pay the more the government will waste on stupid things that don’t help the people any more than a whole in the head. I could do a better job of investing my money by giving it to a mentally retarded person, than by giving it to one of the most corrupt government in the world. People dont save on their own because the government steals and wastes too much of their money, so they barely have enough to feed their families, not because they just dont feel like it.
    Wake up!

  2. I’m quite sane and awake, JSG. But thanks for commenting!

    I didn’t actually say the FICA tax should be raised – just that it’s one of the possible “fixes” for the current system that we’re likely to see. And it actually wouldn’t need to be a very large increase (which you’d know if you had read the report I referenced). We’re talking tenths of a percentage point here.

    I agree – I’d rather keep the money and invest it myself, but that’s not going to happen because of the way the system is currently set up.

    And I highly doubt your claim about why people don’t save money is correct. People spend money on things like cable/satellite, cell phones, eating out, and other wants they consider “needs”. Even if the Social Security and Medicare taxes were eliminated, I highly doubt you’d see people saving more. Nope – it’d just be more money to spend on more stuff they don’t need. Maybe you’re different, but then you wouldn’t be the norm.

    There are a number of reasons your proposal will never happen, and I’m not going to get into them all here. I’m not a fan of taxes either, but the only other likely fixes for Social Security would be to raise the retirement age and/or reduce benefits. I say a little of all three would cause the least amount of felt pain for all involved (raise taxes a little, increase retirement age a little, and reduce benefits a little).

  3. P.S. I’m not rich (by U.S. standards).

  4. Couldn’t the government take the limit off of the max. wages that SS is taxed on? Let the tax be on all wages earned?

  5. Wally, that would certainly be another possible solution – that or just raising the cap. And it could be combined with the other solutions to help minimize the total impact.

  6. It all boils down to a simple fact that government has no right, morally and constitutionally, to forcefully take the money of hard working people, and pretend to invest it for them, as if there were nice little accounts with your name on it. It’s a fact it gets thrown into a pile that is used to fund government expansion and misuse.

    It doesn’t matter if people won’t save their money with out these things, it’s not my role our governments to tell them to save instead of buying a new car.

    You either have liberty and personal responsibility, or birth to grave government care.

  7. Can Ryan let us know what Supreme Court ruling declared Social Security and Medicare taxes unconstitutional? There are many of us that are thankful for the benefits of these programs and I think the current polls on “killing Medicare as we know it” back me up.

    It boils down to the fact that we will pay for the ones with no savings or medical insurance one way or the other unless you support a “Let them die” point of view.

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