Exemption from Social Security taxes

[PERSonalTime]

Are there any circumstances where a person who is receiving Social Security benefits, and still working, be exempt from paying Social Security taxes? I know a person who says that he is an independent contractor who does not pay Social Security taxes. I told him I don't believe that that is possible. Am I correct?

 

[Clone]

As an independent contractor, he gets to pay both the employee and employer side of the social security taxes. He should be given a 1099 from the employer.

 

[samclem]

I know a person who says that he is an independent contractor who does not pay Social Security taxes. I told him I don't believe that that is possible. Am I correct?

-I believe it is entirely possible. I do not believe it is legal. Maybe he deals in cash and pays no taxes at all--very possible, and not legal.

-If he's the typical independent contractor, he pays a "self employment tax" in addition to any income tax he owes. The tax forms don't mention specifically that this self-employment tax is his contribution to SS and Medicare (both the "employer's side" and the "employee's side"). I suppose it is possible for a person to just fill out the forms (or look them over) and not realize they are paying into SS.

 

[razztazz]

- I suppose it is possible for a person to just fill out the forms (or look them over) and not realize they are paying into SS.

Or just use the terminology difference to brag about not paying a tax that everybody else has to pay.

"I don't pay SS taxes!"

("I pay self-employment taxes")

 

[PERSonalTime]

As an independent contractor, he gets to pay both the employee and employer side of the social security taxes. He should be given a 1099 from the employer.

What will the 1099 say. Will it list the amount of social security taxes owed?

 

[samclem]

What will the 1099 say. Will it list the amount of social security taxes owed?

No. The Form 1099 will only show the amount he was paid by his customer. The self-employment tax is shown on line 57 of his form 1040, and computed on Schedule SE.

 

[nun]

Yes you can be getting SS benefits, working and not paying SS taxes. One would be if you began working for a state that has opted out of SS and another would be working in another country.

The OP's friend should be paying both income and SE estimated taxes each quarter. I just filed my sole proprietor and individual taxes and my income tax was $4.5k, but my SE tax was $13.5k.

 

[brucethebroker]

What will the 1099 say. Will it list the amount of social security taxes owed?

The 1099 is for his gross income. He will be able to deduct all business related expenses (including IRA/SEP type contributions, health insurance premiums, transportation expenses, office expenses, etc.) before the FICA/SS/Self employment taxes are calculated. That does dull the pain of paying "double" SS taxes, somewhat.

I guess he could be operating his business as a loss, and that would qualify as not paying any SS tax.....but my understanding is that the IRS may determine his "business" is really just a hobby if it continues.

 

[marko]

My uncle was a member of the clergy. Back in the 50's they were able to opt out of SS and he did. I don't think it's possible now.

His clergy pension turned out to be an even better deal for him.

 

[target2019]

I entered 10K into TurboTax on a 1099-MISC and it tells me that $1,447 is owed.
What happens is that Schedule SE comes into play.
1) 10K is multiplied by .9235
2) 10K becomes $9,235 because of above calc.
3) $9,235 is multiplied by .153
4) The tax is $1,413, computed by 3)
5) One half of $1,413 is $707, which is a deduction placed on line 27 of 1040.

But the tax owed is $1,447.

If the 1099 income becomes large enough, then penalties come into play for not paying estimated tax.

And obviously there might be other W-2 income that comes into play.

 

[COcheesehead]

If he can avoid SS, he must be pretty special. Let me know when he avoids death too.

 

[respond2u]

Are there any circumstances where a person who is receiving Social Security benefits, and still working, be exempt from paying Social Security taxes? I know a person who says that he is an independent contractor who does not pay Social Security taxes. I told him I don't believe that that is possible. Am I correct?

Teachers with other retirement plans are exempt. Preachers, Amish, Quakers, etc. are exempt.

SS only applies to earned income. Investment income, rent from real estate (if passive), dividends don't count.

So he could be running a corporation, paying himself a $1/mn salary, and taking money out via dividends and dodge the SS and Medicare taxes.

 

[Johanson]

About 8-10 years ago, a friend of mine was getting ready to retire. He made his living owning rental property. Anyhoo, he had been looking at his SS statement and said he hadn't paid FiCA since 1976. He lives pretty comfortably.

 

[Tadpole]

So if I hire someone who advertises that they clean homes and I pay them for the hours they work, how do I know if they pay their payroll taxes or not?

 

[MichaelB]

So if I hire someone who advertises that they clean homes and I pay them for the hours they work, how do I know if they pay their payroll taxes or not?

You don't, and it's not your responsibility. Unless your payments exceed certain thresholds you are not required to file any paperwork or retain any payroll taxes. IIRC the minimum amounts are $600 for a 1099 and $1900 for payroll, but these may be old numbers.

 

[Happyras]

So if I hire someone who advertises that they clean homes and I pay them for the hours they work, how do I know if they pay their payroll taxes or not?

We own a sub S corp and were audited last year for "employee" payroll taxes. There were a few folks we paid, who could not produce a valid business license/UBI number, so we got to pay all their payroll taxes for them. Most contracted doctors had valid licenses, but if someone was in state and paid without a UBI, then they were considered employees for both state and federal payroll taxes.....mostly impacts unemployment insurance.

Our IT guy was doing work on the side for us, so we had a little bigger cut to pay for him. An elderly woman who did a $15 dollar repair on a leather item was deemed and employee, which I thought was extreme, but to the letter of the law.

We learned a lesson and now we are very careful on contracting work.

 

[meierlde]

You don't, and it's not your responsibility. Unless your payments exceed certain thresholds you are not required to file any paperwork or retain any payroll taxes. IIRC the minimum amounts are $600 for a 1099 and $1900 for payroll, but these may be old numbers.

As noted above in a post, unless the person runs an independent business, you could get tripped up as Clintons first Attorney General nominee did over schedule H filings. In general you do have to pay your 1/2 of social security benefits, as well as withhold or pay the employees part. The limit at which you must pay is now 2000. https://www.irs.gov/instructions/i1040sh/ar01.html#d0e300
In addition if you pay anyone more than 2k you need to file and pay unemployment taxes.

 

[F4mandolin]

Actually......If I were still working.....I believe I wouldn't have to pay US taxes on social security when I start taking it in 2.5 years. I will have to pay UK taxes on it however.

 

[nun]

Actually......If I were still working.....I believe I wouldn't have to pay US taxes on social security when I start taking it in 2.5 years. I will have to pay UK taxes on it however.

This is true......US SS paid to a UK tax resident is free of US tax. Interestingly the wording of the US/UK tax treaty means that the US can tax UK SS when paid to a US citizen resident in the UK because it is not a cross border payment.