Social Security participation is mandatory, not voluntary. Just about everyone who earns wages or net income from self-employment must pay Social Security tax on their income. Members of certain religious groups may qualify for exemption from the Social Security tax and benefits. The Social Security tax, also known as the Federal Insurance Contribution Act (FICA) tax, is collected by the Internal Revenue Service along with federal income taxes.
Social Security Is Always Mandatory
An often-repeated myth is that Social Security was originally intended to be a voluntary old-age pension program. However, in its early decades, the Social Security Act covered around 50 percent of the jobs in the U.S. economy. People working in fields not covered by the act didn’t have to pay the Social Security tax but weren’t eligible to draw Social Security benefits. When Congress amended the Social Security Act to expand coverage to more jobs, people working at those jobs were required to pay the Social Security tax.
No Opt-Out Method
Another myth is that the Social Security act allows individuals to opt out of the Social Security system and get a refund of the Social Security taxes they paid. This is false. There is no lawful way for people to quit the Social Security program.
Although there have been attempts in Congress to pass legislation allowing people to opt out of Social Security in favor of a private pension plan, none of these bills has passed. There also is no way you can get a refund of Social Security taxes.
Social Security Numbers Are Mandatory
Certain types of government or business transactions are impossible without a Social Security number. For instance, the IRS requires that all dependents have a Social Security number for filing tax returns or the dependent claim will be denied. States require a Social Security number for state tax administration, food stamps, Medicaid, unemployment, welfare and commercial drivers licenses. Employers require a Social Security number for wage and tax reporting.
The Veterans Administration requires a Social Security number for hospital admissions. A Social Security number also is required for student loans and worker’s compensation. Banks require a Social Security number for monetary transactions.
Religious Exemption for Social Security
Members of certain established religious groups may qualify for an exemption from Social Security taxation if the group is conscientiously opposed to accepting government benefits and existed as a religious group before 1951. Also, the member claiming religious exemption must never have qualified for or received Social Security benefits. The member must file a Form 4029 with the IRS waiving all rights to Social Security and Medicare benefits. Examples of exempt religious groups include the Amish and Mennonites.
Social Security Benefits
People who are eligible for Social Security benefits include retired workers, disabled individuals, spouses or dependents of a beneficiary and survivors of beneficiaries. Every working adult is eligible to earn eligibility for Social Security benefits. Contrary to popular belief, Social Security tax is not set aside for specific individuals as they pay.
Benefit amounts are heavily determined by when an individual starts claiming them. A social security number is how the Social Security Administration knows who has paid into the system and how benefits are distributed. If an individual has filed for benefits, they can cancel the benefits if they need to go back to work.
The SSA uses the tax collected to fund current beneficiaries and uses a credit system to determine how much benefit an individual will receive. A single credit is earned for every $1,410 earned and up to four credits may be earned each year. Typically, an individual will need 40 credits in order to obtain eligibility for benefits. Disability benefits for younger individuals will require less credits for eligibility.
Recipients of disability benefits do not need to file separately for retirement benefits. Individuals who have not worked steadily or had lower lifetime earnings may earn less benefits than higher earning individuals.
- SSA: The Development of Social Security in America
- SSA: Understanding the Benefits
- IRS: About Form 4029, Application for Exemption From Social Security and Medicare Taxes and Waiver of Benefits
- Social Security Administration. "Fact Sheet: Social Security," Page 1. Accessed April 11, 2020.
- Social Security Administration. "Are members of religious groups exempt from paying Social Security taxes?" Accessed April 11, 2020.
- Internal Revenue Service. "Social Security/Medicare and Self-Employment Tax Liability of Foreign Students, Scholars, Teachers, Researchers, and Trainees." Accessed April 11, 2020.
- Social Security Administration. "Social Security Coverage for Employees of Foreign Governments and Instrumentalities of Foreign Governments Working in the United States," Pages 1-2. Accessed April 11, 2020.
- Social Security Administration. "Frequently Asked Questions: What is a Section 218 Agreement?" Accessed April 11, 2020.
- Internal Revenue Service. "Topic No. 554 Self-Employment Tax." Accessed April 11, 2020.
- Social Security Administration. "2021 SOCIAL SECURITY CHANGES." Accessed Oct. 16, 2020.
- Internal Revenue Service. "Topic No. 751 Social Security and Medicare Withholding Rates." Accessed April 11, 2020.
- Social Security Administration. "Social Security Credits." Accessed April 11, 2020.
- National Academy of Social Insurance. "What is Social Security?" Accessed April 11, 2020.
- Internal Revenue Service. "Form 4029: Application for Exemption From Social Security and Medicare Taxes and Waiver of Benefits." Accessed April 11, 2020.
- Internal Revenue Service. "Publication 517: Social Security and Other Information for Members of the Clergy and Religious Workers." Accessed April 11, 2020.
Herb Kirchhoff has more than three decades of hands-on experience as an avid garden hobbyist and home handyman. Since retiring from the news business in 2008, Kirchhoff takes care of a 12-acre rural Michigan lakefront property and applies his experience to his vegetable and flower gardens and home repair and renovation projects.