Income exempt from FICA falls into three groups: wages paid to certain categories of workers (some visa holders, on-campus student workers, pre-1984 federal employees, approved religious objectors), specific employer-provided benefits that Congress has carved out of the definition of “wages” (health premiums, HSA and dependent care contributions through a cafeteria plan, employer retirement contributions, group-term life insurance up to $50,000, educational assistance and student loan repayments up to $5,250, workers’ compensation), and small-dollar or family-labor arrangements that fall under statutory thresholds. Everything else is generally subject to the combined 15.3% FICA rate, split evenly between employer and employee: 6.2% each for Social Security up to a $184,500 wage base in 2026, and 1.45% each for Medicare with no cap.1Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates
Workers Who Are Exempt Because of Who They Are
Some workers pay no FICA on their wages regardless of what the paycheck looks like, because their employment status itself sits outside the Social Security system.
Nonresident Aliens on F-1, J-1, M-1, and Q-1 Visas
Nonresident aliens temporarily in the United States on these visas owe no FICA on wages for services connected to the purpose of the visa. A foreign student working a campus job on an F-1 visa is the classic example.2Internal Revenue Service. Aliens Employed in the U.S. – Social Security Taxes The exemption does not cover work unrelated to the visa or work USCIS hasn’t authorized.
The exemption ends when the person becomes a resident alien under the substantial presence test. For F-1, J-1, and M-1 students, the first five calendar years in the U.S. are generally exempt; after that, standard residency rules apply and FICA begins.3Internal Revenue Service. Foreign Student Liability for Social Security and Medicare Taxes
Students Employed by Their School
Students who work for the school, college, or university where they are enrolled and regularly attending classes are exempt under the “student rule.” The work has to be incidental to the studies. If an outside contractor operates on campus and hires the student, the exemption doesn’t apply, even if the student never sets foot off school grounds.
Federal Employees Under CSRS and Some State and Local Workers
Federal employees hired before January 1, 1984, generally don’t pay the Social Security portion of FICA because they’re covered by the Civil Service Retirement System.4Social Security Administration. Social Security Benefits for Federal Workers They still pay the 1.45% Medicare portion. Anyone hired on or after that date falls under the Federal Employees Retirement System and pays full FICA.
State and local government employees may also be exempt from the Social Security portion if they participate in a qualifying public retirement system that provides comparable benefits. Without such a system, full FICA applies.
Members of Recognized Religious Groups (Form 4029)
Members of a recognized religious group conscientiously opposed to accepting insurance benefits for death, disability, or retirement can apply for exemption by filing Form 4029. The group must have existed continuously since December 31, 1950. Approval requires the individual to irrevocably give up all rights to Social Security and Medicare benefits. “Irrevocably” is meant literally: you cannot change your mind later, even if you leave the group.
Employer-Provided Benefits Excluded From FICA Wages
Even for a regular employee who owes FICA on base salary, several forms of compensation are carved out of the definition of wages. These are some of the most valuable tax benefits in the Code.
Employer Retirement Plan Contributions
Employer matching and nonelective contributions to qualified plans like 401(k)s and 403(b)s are exempt from FICA. Employee elective deferrals are not. The money you choose to redirect from your paycheck into the plan is fully subject to Social Security and Medicare taxes whether the deferral is traditional or Roth.5Internal Revenue Service. Are Retirement Plan Contributions Subject to Withholding for FICA, Medicare, or Federal Income Tax
Pre-tax 401(k) deferrals do reduce federal income tax withholding, which is why many people assume they also reduce FICA. They don’t. On your W-2, Box 1 (income tax wages) will sit lower than Box 3 (Social Security wages) by the amount of your pre-tax deferrals. That gap trips up self-preparers and small payroll operators every year.
Nonqualified deferred compensation runs on its own timing rule. It becomes subject to FICA at the later of when the services are performed or when the right to the compensation becomes guaranteed.
Health Insurance Premiums
Employer-paid health insurance premiums are excluded from FICA wages. When employees pay their share on a pre-tax basis through a cafeteria plan (Section 125), those employee contributions are also exempt.6Internal Revenue Service. FAQs for Government Entities Regarding Cafeteria Plans The two-sided exclusion is why employer-sponsored coverage is so much more tax-advantaged than buying insurance individually.
Health Savings Account Contributions
Employer HSA contributions are excluded from FICA wages, and employee contributions made through a cafeteria plan salary reduction are also exempt. Contributing to an HSA outside a cafeteria plan (writing a personal check to the custodian) gets you an income tax deduction but no FICA relief. Same contribution, less tax savings.
Group-Term Life Insurance Up to $50,000
Employer-provided group-term life insurance is exempt from FICA on the first $50,000 of coverage. Above that, the imputed cost of the excess coverage gets added to the employee’s FICA wages.7Internal Revenue Service. Group-Term Life Insurance Most employer plans stop at $50,000 for exactly this reason.
Educational Assistance and Student Loan Repayments Up to $5,250
Employer-provided educational assistance is excluded from FICA wages up to $5,250 per calendar year, covering tuition, fees, books, and supplies. The education doesn’t have to be job-related.8Office of the Law Revision Counsel. 26 USC 127 – Educational Assistance Programs Anything paid over $5,250 must be included in FICA wages unless it independently qualifies as a working condition fringe benefit.
The One Big Beautiful Bill Act, signed in July 2025, permanently expanded Section 127 to include employer payments toward an employee’s student loan principal and interest. These share the same $5,250 annual cap. If your employer pays $3,000 toward tuition and $2,250 toward your student loans in the same year, the cap is used up. Starting with tax years after December 31, 2026, the cap will be indexed for inflation.
Dependent Care Assistance Up to $5,000
Employer-provided dependent care assistance up to $5,000 per year ($2,500 for married filing separately) is excluded from FICA when provided through a qualifying plan, typically a dependent care FSA within a cafeteria plan. Anything above the cap is FICA wages.
Workers’ Compensation
Payments under a workers’ compensation statute for sickness or injury are entirely exempt from FICA. They’re treated as insurance payouts rather than compensation for services, and the length of payments doesn’t matter.
De Minimis and Working Condition Fringe Benefits
De minimis benefits are items too small to make tracking practical: occasional personal use of the office copier, a low-value holiday gift, coffee in the break room. Cash and cash equivalents never qualify, no matter how small.
Working condition fringe benefits are things the employer provides that the employee would otherwise have to pay for to do the job: required training, professional dues, business use of a company vehicle. The exclusion applies to the extent the employee could have deducted the cost as a business expense.
One Benefit That Is No Longer Exempt: Moving Expenses
Employer-paid moving expense reimbursements used to be broadly excluded from FICA. The Tax Cuts and Jobs Act suspended that exclusion, and the One Big Beautiful Bill Act made the suspension permanent.9Internal Revenue Service. Moving Expenses to and From the United States For 2026 and beyond, the exclusion survives only for active-duty members of the Armed Forces moving under military orders for a permanent change of station, and for employees or appointees of the intelligence community moving due to a reassignment.10Internal Revenue Service. Publication 15-A (2026), Employer’s Supplemental Tax Guide For everyone else, moving reimbursements are fully subject to FICA and get reported on the W-2 as wages.
Small-Dollar and Family-Labor Thresholds
Several exemptions kick in when the pay stays under a statutory threshold or the working relationship is casual, agricultural, or between parent and child.
Domestic Workers (The Nanny Tax): $3,000 for 2026
Wages paid to a household worker in a private home are exempt from FICA if total cash wages for the year fall below an annually adjusted threshold. For 2026, the threshold is $3,000.11Social Security Administration. Employment Coverage Thresholds Once you hit $3,000 for the year, FICA applies to the entire amount from the first dollar, not just the amount above the threshold. You report the liability on Schedule H with your Form 1040. The threshold was $2,700 in 2024 and $2,800 in 2025, so anyone who fell just under the line in a prior year should recheck the math each January.
Agricultural Labor: $150 Individual or $2,500 Total
Farm wages are exempt unless one of two tests is met. Under the individual cash-pay test, FICA applies if you pay a single farm worker $150 or more in cash during the year. Under the total expenditure test, FICA applies to all farm wages if total payments (cash and noncash) to all farm workers reach $2,500 for the year.12Internal Revenue Service. Publication 15 (2026), (Circular E), Employer’s Tax Guide The $2,500 test is the one that surprises employers: even if no single worker gets close to $150, once total farm labor spending reaches $2,500, every worker’s wages become subject to FICA.
Casual Labor Not in the Employer’s Business: Under $100
Cash wages for work that isn’t part of the payer’s trade or business are exempt if you pay the worker less than $100 during the year.13Office of the Law Revision Counsel. 26 USC 3121 – Definitions Paying a neighborhood teenager to rake leaves or help you move furniture qualifies, provided you aren’t in the landscaping or moving business. Domestic service in a private home uses the nanny threshold, not this one.
Children Under 18 Employed by a Parent
Wages paid to a child under 18 who works for a parent’s sole proprietorship, or for a partnership in which both partners are the child’s parents, are exempt from Social Security and Medicare taxes.14Internal Revenue Service. Tax Treatment for Family Members Working in the Family Business The exemption ends at 18. It also doesn’t apply if the business is a corporation, or if a non-parent is a partner. Entity structure controls the result.
What Isn’t Subject to Self-Employment Tax
Self-employed individuals pay the equivalent of FICA through SECA on Schedule SE. The rate is the full 15.3%: 12.4% Social Security up to the $184,500 wage base in 2026, and 2.9% Medicare with no cap.15Internal Revenue Service. Self-Employment Tax (Social Security and Medicare Taxes) Several categories of income are outside the reach of SECA.
No SECA is due if net earnings from self-employment are less than $400 for the year.16Internal Revenue Service. About Schedule SE (Form 1040), Self-Employment Tax Net, not gross. Someone who grosses $5,000 with $4,700 in legitimate business expenses has $300 in net earnings and owes nothing.
Rental income from real estate is generally excluded from self-employment earnings, unless you’re a real estate dealer or provide substantial services to tenants such as daily housekeeping at a short-term rental. Dividends, interest, and capital gains are excluded as well. These income streams still get taxed for income tax purposes but never touch Schedule SE.
Distributions from qualified retirement plans and Social Security benefits are also outside SECA. They may be subject to income tax under their own rules, but self-employment tax doesn’t apply to them.
The Additional Medicare Tax Isn’t an Exemption
Higher earners face a 0.9% Additional Medicare Tax on wages and self-employment income above filing-status thresholds: $200,000 for single, $250,000 for married filing jointly, and $125,000 for married filing separately.17Internal Revenue Service. Questions and Answers for the Additional Medicare Tax These thresholds are not indexed for inflation and have stayed the same since 2013.
Only the employee pays this tax; the employer doesn’t match. Employers are required to begin withholding the 0.9% once your wages exceed $200,000, regardless of filing status. If your real threshold is higher because you file jointly, you reconcile on your return. If it’s lower because you file separately, you may owe more at filing.
What Happens If an Employer Claims an Exemption Wrong
Getting a FICA exemption wrong isn’t a paperwork issue. Employers who fail to withhold and deposit FICA face tiered penalties by lateness: 2% at one to five days late, 5% at six to fifteen days, and 10% beyond fifteen days.18Internal Revenue Service. Failure to Deposit Penalty The percentages don’t stack.
The larger exposure is the trust fund recovery penalty. FICA amounts withheld from employees are held in trust for the government. If an owner, officer, or anyone else responsible for payroll knowingly diverts those funds rather than depositing them, the IRS can assess a penalty equal to 100% of the unpaid tax against that individual personally. The penalty reaches through the corporation or LLC and follows the person, and it gets assessed more often than most small business owners expect.