Do I really have to pay self employment (SS + Medicare) tax?

Question

A couple of years ago I didn't make enough to pay income taxes. In a phone conversation with IRS, I was told I didn't have to pay Social Security and Medicare tax, though it was advisable.

Answer 1

Opting out of Social Security

There is no legal requirement for individuals to join or participate in the Social Security program. However, the FICA taxes imposed are mandatory on covered workers and the self-employed who are covered. Employers are required[26] to report wages for covered employment to Social Security for processing Forms W-2 and W-3. There are some specific groups which are not required to pay into the Social Security program (discussed below). Internal Revenue Code Provisions section 3101 imposes payroll taxes on individuals and employer matching taxes. Section 3102 mandates that employers deduct these payroll taxes from workers' wages, at the worker's request (form W-4), before they are paid. Generally, the payroll tax is mandatory on everyone in employment earning "wages" as defined in 3121 of the Internal Revenue Code, and also taxes net earnings from self-employment.
Importantly, most parents apply for Social Security numbers for their dependent children in order to [27] include them on their income tax returns as a dependent. Everyone filing a tax return, as taxpayer or spouse, must have a Social Security Number or Taxpayer Identification Number (TIN) since the IRS is unable to process returns or post payments for anyone without an SSN or TIN. Moreover, the Internal Revenue Service will not[28] issue a TIN to anyone who qualifies for, but is not denied a Social Security number.

[edit] Groups not covered by Social Security

There are a number of groups of workers who are exempted from having to pay Social Security taxes:

* Federal employees hired before 1984 who elected to continue to participate in the federal retirement program instead of receiving part of their retirement under Social Security coverage.
* Certain state or local government workers participating in their employers' alternative retirement system.
* Ministers may choose whether or not they will participate in the Social Security program.
* Self-employed workers with annual net earnings below $400.
* Election workers earning $1,000 or less a year.
* Household workers earning less than $1,500 per year.
* Minor children with earnings from household work but for whom household work is not their principal occupation.
* College students working under Federal Work Study programs, graduate students receiving stipends while working as teaching assistants, research assistants, or on fellowships, and most postdoctoral researchers.
* Individuals who are members of certain religious groups such as the Amish and Mennonites.

Before the 1983 changes, three counties in Texas (Galveston, Brazoria, and Matagorda) opted out of the system and now use an Alternate Plan, a private pension plan created and administered by First Financial Benefits, Inc.

Answer 2

If you are a covered worker, you individually do not have the option to not participate in Social Security and Medicare.

There are exceptions. Certain state government agencies and religious groups do not participate. Certain ordained ministers do not participate.

But unless you fall into one of those groups, you really do have to pay self-employment tax when your net earnings are $400 or more.

Also, if your net earnings are $400 or more, you are required to file a tax return.

Only if your net earnings from self-employment, as your only source of income, are less than $400 will you not have to file a tax return or pay self-employment tax.

Answer 3

It is very advisable to pay SS & Medicare because you are only helping yourself in the long run. If you don`t then when it comes time for you to draw SS & get Medicare you won`t be able to because it goes by what you have paid in.

Answer 4

If your net earnings from self-employment were above the limit to pay se tax, then yes you have to pay it. You don't say what year you're talking about, but the limit for 2006 was $400.

Answer 5

If you call again you are likely to get a different answer. Welcome to the world of the self employed. I always have to pay several hundred dollars in to SS in April, and it hurts, but I want to be sure there'll be something there when I retire.............Did I really say that ?!?!?! There won't be , oh well , George needs the $ for his wars.