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How do I opt-out of the Social Security system and give up my Social Security Number? If I do this, am I then exempt from paying Social Security income tax?

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4 Answers

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To give up your Social Security number, you would probably have to renounce your citizenship, since merely leaving the United States, becoming a permanent expatriate, etc. wouldn't be enough.

Paying Social Security taxes is mandatory, however. Even if your income exceeds the means testing limits, you are still required to pay Social security (FICA) taxes on the income that falls beneath it.

That being said, there are several groups that are exempt from paying Social Security taxes, based on what I can scrounge up through online searching.

  1. College students who work under the Federal Work Study program. 1
  2. State or local government workers (like teachers, city workers, police, firefighters, etc.) hired before March 31, 1986 and who participate in their employers' alternative retirement systems.
  3. Self-employed workers with with yearly net earnings less than $400
  4. Ministers, members of certain religious orders, and Christian Science practitioners may file IRS Form 4361 to exempt themselves from self-employment taxes, including FICA taxes. The picture is more complicated than this, however (see below).
  5. All members of certain religious groups, like the Amish, Mennonites, etc. 2
  6. Election workers earning $1,000 or less a year.
  7. Minor children with earnings from household work but for whom household work is not their principal occupation.

If you aren't part of one of these groups or you joined them after already being enrolled in the Social Security system (i.e. paid FICA taxes, etc.), you don't have to take Social Security payments, but you are not exempt from FICA payroll taxes. This means that you can't simply become Amish and be exempt if you've already paid into the system.

Many of these answers were listed here, but the only stated source is "Wikipedia," so take it with a grain of salt. I've tried to provide other sources where I could.

Ministers/religious officials

I mentioned that the situation with ministers and/or religious officials is more complicated. Among other things, these officials need to certify that they are religiously opposed to receiving public insurance benefits and they have to file by a certain deadline soon after earning a certain amount as a minister. Furthermore, if you file this exemption and choose/chose to revoke it later on, e.g. by filing IRS Form 2031, during the short time windows when this is possible, you're no longer eligible to file for another exemption. Once you revoke your exemption, you won't get another one.

Also note that this opt-out only applies to income earned as part of your ministry. For non-ministerial income, you're still required to pay FICA taxes even if you follow the procedure(s) above.

If you do opt-out

Clearly, opting out of the Social Security isn't easy, or even feasible, for many people, but if you are outside the system, common sense dictates that you should insure yourself against risks that would usually be covered, at least in part, by Social Security. Dave Ramsey maintains a list of such investments that he recommends ministers and religious officials who opt out of the Social Security system should purchase, but the rationale applies to anyone who isn't part of the system.

  1. Term life insurance that covers 10x your annual income. Normally, your spouse or dependents will receive a Social Security death benefit upon your death, but if you opt-out, your family doesn't have this option. Since the death benefit is a pittance ($255), however, you may want life insurance regardless of your participation in Social Security.

  2. Long-term disability insurance. If you become disabled, you won't receive disability benefits, so you'll may want insurance to cover this risk.

  3. Long-term care insurance. Similar to disability insurance, you may want additional income to cover you in case you require long-term care, and Medicaid isn't enough.

  4. Other retirement savings. If you're not going to be paying money into Social Security, it makes sense to invest that money in some form of tax-advantaged or tax-sheltered retirement account to ensure that you still have some income in retirement. You won't be receiving Social Security checks, but you'll still need income.

Depending on your circumstances, it's may be a good idea to invest in some or all of these instruments anyway (especially tax-advantaged/tax-sheltered retirement accounts), because Social Security doesn't cover 100% of the risks you'll face, but that decision is highly specific to each person/family.

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Emigration may work, BUT if you renounce your citizenship be prepared to pay the IRS a levy on all your assets (in the US or otherwise). Alternatively, be prepared for the consequences of not paying said levy (possible arrests and extradition, or having your assets frozen.) See IRS documentation: irs.gov/Individuals/International-Taxpayers/Expatriation-Tax –  fennec Mar 28 '13 at 14:15
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@fennec I don't know if simply emigrating would work (I wouldn't think so), and don't get me wrong, I definitely don't think renouncing ones citizenship is an easy or worthwhile route to take. –  John Bensin Mar 28 '13 at 14:43
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I'm sorry, I meant to address "emigration-and-renouncing-your-citizenship-as-a-general-process" rather than emigration without renunciation of citizenship. –  fennec Mar 28 '13 at 15:59
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@fennec the expat tax is above certain limits (2MM net worth or very high earners with 140+K tax liability in preceding years). For an average person there's no tax consequences to renouncing citizenship. But there are other consequences (e.g.: need a visa to come back and visit friends and family in your own homeland, might be traumatic). Also, obviously, having another citizenship is required, you cannot renounce citizenship unless you can show that you have another. –  littleadv Mar 28 '13 at 17:41
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@littleadv - Anyone leaving the country because they do not want to be subjected to the government is likely to find that the grass is not greener is more traumatic than leaving your homeland. –  user4127 Mar 28 '13 at 19:37
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Once you have a number you are in the Social Security system. There is currently no method that will allow you to remove your records from the system, surrender your rights to the contributions you have already made, surrender your rights to claim benefits should your qualify, or avoid paying social security payroll taxes on qualifying income.

There are some ways that you can become exempt and they can be found here. You should note the qualifier for the religious exemption that was suggested by @Muro:

The exemption is unavailable if you’ve ever been eligible to receive benefits under the Social Security program regardless of whether you actually received the benefit or not.

So if you have ever paid into FICA, or if your parents ever received SS/Disability while you were a dependent then you probably do not qualify for that exemption. The Social Security Administration is notorious for rejecting initial applications for status changes seemingly with out looking at them. I have never heard of anyone under the age of 64 having their initial application accepted. They are also rather slow. Wait times of 6-8 months for initial rejections are not uncommon and then another 12+ months of the appeals process seems to be the norm.

Bottom line, Chances are you will not qualify for an exemption if you intend to stay in the US, and/or retain US Citizenship. Even if you can qualify expect a battle from the SSA before the status is recognized.

I did find one possible exemption on the IRS Site that exempts clergy. So if you are a full time clergy of a qualifying church you can review this site to see if you would qualify. This is not going to remove you from the system but so long as it is your only income you could avoid paying the tax in this manner.

Be aware that if you attempt to use any of the exemptions and are trying to game the system just to avoid paying the taxes it could count as what the IRS Deems Abusive tax avoidance which can result in both jail time and heavy penalties and fines.

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+1 for mentioning jail time, since people seem to forget about the penalties of tax avoidance sometimes. –  John Bensin Mar 28 '13 at 13:57
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You can always give up your rights, it just doesn't reduce your obligations. Just don't take distributions - easy:) –  littleadv Mar 28 '13 at 17:43
    
@Littleadv - Choosing not to exercise your rights is not the same as giving them up. Choosing not to file at one point does not usually prohibit you from filing in the future. It may prevent you from receiving payments you have missed but with the SSA you can sometimes get back pay for moneys you should have been paid had you filed on time. –  user4127 Mar 29 '13 at 12:46
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I am aware of only one way to become exempt from paying social security taxes: become amish.

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+1 for the interesting story. –  Dheer Mar 28 '13 at 13:22
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Really you probably have to be born Amish(Apostolic Christian, Christian Scientist, and a few others too) so that you have never been eligible to receive SS benefits. If have been eligible ever before then you can not claim an exemption. –  user4127 Mar 28 '13 at 15:06
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You can't opt out, and you can't exempt yourself from taxation. Except perhaps by permanently emigrating from the United States.

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Note that US citizens must continue to file tax returns, even if they have emigrated. In many cases, they will not end up having to pay additional taxes due to tax treaties. See for example, americansabroad.org/issues/taxation/… –  ChrisInEdmonton Mar 28 '13 at 14:49
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