Employees Opting Out of Social Security

[Christine Roberts]

It is my understanding that the only grounds for employees of private employers to opt out of social security is as a member of a "recognized religious group," and that it is necessary to waive SS benefits by executing IRS Form 4029.

I am seeing an increasing frequency in clients' employees claiming exemption from Social Security taxes and want to make sure that this is the only approved means to opt out of the system.

Any comments appreciated.

[GBurns]

What are these employees claiming as their reason?

[Christine Roberts]

Generally it is just objection to the entire federal taxation scheme. Often this is teamed with a refusal to provide a SSN.

[GBurns]

In general a employer has to obtain from each employee a Form W-4 each year. In addition, at start of employment there is a INS form (maybe I-9) that must be filled out and the state new-hire form.

All these forms require either a SSN or a TIN as a substitute. If the INS and state new-hire information is not provided the person should not be hired. If the W-4 info is not provided the employee is to be treated as a single person who claims no withholding, however, the lack of a SSN presents other problems that should cause the person to be not employable.

There is also the issue of state unemployment reporting which requires the SSN of the employee.

If the employee is eligible to be changed to independent contractor status, which is very unlikely, there needs to be a Form W-9 which again needs either a SSN or a TIN.

Any employer who decides to succumb to the wishes of the employee and not withhold the proper payroll taxes should eventually face massive penalties from the IRS and the State.

If any employee wishes to be exempt from FICA etc the employer should have them establish a corporate entity for themselves and provide services through that medium, thereby assuming all the responsibility themself.

[Guest Cathie]

I'm confused about the previous response. I'm not sure I agree that all employees have to fill out a new W-4 every year. Can you provide me with chapter and verse on this?

[Christine Roberts]

The discussion of SSNs is a little bit of a detour; I am familiar with the problems and arguments this issue raises.

I am more concerned with general opinion re: means to opt out of Social Security/medicare withholding. My research suggests the From 4029 is the sole legitimate means of doing so .... any other opinions??

[GBurns]

I should have used the word "should" instead of "must". there is no legal requirement of an annual W-4 for all employees, it is only a requirement for those who are exempt from withholding because the exemption expires each year as is ated on the W-4. Many employers that I have seen over the years do it annually as a safety factor necessitated by high turn over and frequently changing family situations that change personal allowances. Doing it annually in these situations help to limit underdeduction.

Regarding Form 4029 it is a very restrictive form and restricted to qualifying members of certain recognized religious groups of which there are very few.

The easier form to use might be Form 4361 which covers Ministers and members of Religious Orders and is much less restrictive. For instance Form 4029 requires that the group must have existed continuously since 1950.

In any case the employee has to do a lot more than just saying that he/she is exempt. They at least have to file first with the IRS and get approval.