Income exempt from FICA falls into three groups: wages paid to certain categories of workers (some nonresident visa holders, student employees of their own school, federal workers hired before 1984, approved religious objectors, and children under 18 working for a parent’s unincorporated business), specific employer-provided benefits that the tax code carves out of the definition of wages (health premiums, HSA and employer retirement contributions, group-term life insurance up to $50,000, dependent care and educational assistance up to statutory caps, and workers’ compensation), and small-dollar labor that falls below statutory thresholds for household, farm, and casual work. Everything else is covered, and the combined FICA rate on covered wages is 15.3%, 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 wage cap.1Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates
Which exemption applies to you depends on who you are, what the payment is for, or how small the amount is. The sections below work through each path.
Workers Whose Status Exempts Them
Nonresident Aliens on F-1, J-1, M-1, or Q-1 Visas
Nonresident aliens temporarily in the United States on F-1, J-1, M-1, or Q-1 visas owe no FICA on wages paid for services connected to the purpose of their visa. A foreign student on an F-1 visa working a campus job, for example, pays no Social Security or Medicare tax on those wages.2Internal Revenue Service. Aliens Employed in the U.S. – Social Security Taxes Work outside the purpose of the visa, or work U.S. Citizenship and Immigration Services hasn’t authorized, isn’t covered.
The exemption ends once the individual becomes a resident alien under the substantial presence test. For foreign students on F-1, J-1, or M-1 visas, the first five calendar years in the U.S. are generally exempt; after that, standard residency rules apply and FICA kicks in.3Internal Revenue Service. Foreign Student Liability for Social Security and Medicare Taxes
Student Employees of Their Own School
Students employed by the school, college, or university where they are enrolled and regularly attending classes are exempt from FICA on that pay, as long as the work is incidental to their studies. Working on campus for an outside contractor doesn’t count, even if the student never leaves school grounds.
Federal Employees Under the Civil Service Retirement System
Federal employees hired before January 1, 1984 generally pay no Social Security portion of FICA, because their retirement benefits come through the Civil Service Retirement System rather than Social Security.4Social Security Administration. Social Security Benefits for Federal Workers They still pay the 1.45% Medicare portion. Federal employees hired on or after that date fall under the Federal Employees Retirement System and pay 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 with comparable benefits; without one, full FICA applies.
Members of Approved Religious Groups
Members of recognized religious groups that are conscientiously opposed to accepting insurance benefits for death, disability, or retirement can apply for a FICA exemption by filing IRS Form 4029. The religious group must have existed continuously since at least December 31, 1950. Approval requires the individual to irrevocably give up all rights to Social Security and Medicare benefits. “Irrevocably” means exactly what it sounds like: you cannot change your mind later, even if you leave the religious group.
Children Under 18 Working for a Parent
When a child under 18 works for a parent’s sole proprietorship or a partnership in which both partners are the child’s parents, those wages are exempt from Social Security and Medicare taxes.5Internal Revenue Service. Tax Treatment for Family Members Working in the Family Business The exemption ends when the child turns 18. It also doesn’t apply if the business is a corporation or if any non-parent is a partner, so the entity structure matters.
Employer Benefits That Don’t Count as FICA Wages
Even for ordinary employees who owe FICA on their base salary, several forms of compensation are carved out of “wages” for FICA purposes. These are some of the most valuable tax benefits in the Internal Revenue Code.
Retirement Plan Contributions (With a Big Catch)
Employer matching and nonelective contributions to qualified retirement plans like 401(k)s and 403(b)s are exempt from FICA. Employee elective deferrals, the money you choose to redirect from your paycheck into the plan, are fully subject to Social Security and Medicare taxes regardless of whether the contributions are pre-tax (traditional) or Roth.6Internal Revenue Service. Are Retirement Plan Contributions Subject to Withholding for FICA, Medicare, or Federal Income Tax
This is the single most common FICA error. Pre-tax 401(k) deferrals do reduce your federal income tax withholding, which is why many people assume they also reduce FICA. They don’t. Your W-2 Box 1 (taxable wages for income tax) will be lower than Box 3 (Social Security wages) by the amount of your pre-tax deferrals.
Nonqualified deferred compensation follows a different 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 premiums for health insurance are excluded from FICA wages. When employees pay their share of premiums on a pre-tax basis through a cafeteria plan (also called a Section 125 plan), those employee contributions are also exempt from FICA.7Internal Revenue Service. FAQs for Government Entities Regarding Cafeteria Plans This double-sided exclusion is the main reason employer-sponsored health coverage is so tax-advantaged compared with buying individual insurance.
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.7Internal Revenue Service. FAQs for Government Entities Regarding Cafeteria Plans Contribute to an HSA outside a cafeteria plan (by writing a personal check to the HSA custodian, say), and you get an income tax deduction but no FICA relief. The cafeteria plan route is worth more money for the same contribution.
Group-Term Life Insurance Up to $50,000
Employer-provided group-term life insurance is exempt from FICA for up to $50,000 of coverage. Once coverage exceeds that threshold, the imputed cost of the excess amount gets added to the employee’s FICA wages.8Internal Revenue Service. Group-Term Life Insurance Most employer plans stay at or under the $50,000 line specifically to avoid triggering this.
Educational Assistance and Student Loan Repayments
Employer-provided educational assistance is excluded from FICA wages up to $5,250 per calendar year. This covers tuition, fees, books, and supplies, and the education does not have to be related to the employee’s current job.9Office of the Law Revision Counsel. 26 USC 127 – Educational Assistance Programs Any amount beyond $5,250 is included in FICA wages unless it qualifies separately 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 payments share the same $5,250 annual cap with traditional educational assistance, so if your employer pays $3,000 toward tuition and $2,250 toward your student loans in the same year, you’ve hit the limit. Starting with tax years after December 31, 2026, the $5,250 cap will be indexed for inflation.
Dependent Care Assistance
Employer-provided dependent care assistance up to $5,000 per year ($2,500 for married filing separately) is excluded from FICA wages when provided through a qualifying plan, commonly a dependent care flexible spending account inside a cafeteria plan.7Internal Revenue Service. FAQs for Government Entities Regarding Cafeteria Plans Amounts above the limit must be included in wages.
De Minimis and Working Condition Fringe Benefits
Some fringe benefits are excluded because of what they are. De minimis benefits are items so small that tracking them would be impractical: occasional personal use of the office copier, a low-value holiday gift, coffee in the break room. Cash and cash equivalents never qualify as de minimis, no matter how small the amount.
Working condition fringe benefits are things an employer provides that the employee would otherwise need to pay for to do the job: required job-specific training, professional dues paid by the employer, use of a company vehicle for business purposes. The exclusion applies to the extent the employee could have deducted the cost as a business expense.
Workers’ Compensation Payments
Payments made 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 exclusion applies no matter how long the payments continue.
Moving Expense Reimbursements (Mostly No Longer Exempt)
Before 2018, employer-paid moving expense reimbursements were broadly excluded from FICA wages. The Tax Cuts and Jobs Act suspended that exclusion through 2025, and the One Big Beautiful Bill Act made the suspension permanent.10Internal Revenue Service. Moving Expenses to and From the United States For 2026 and beyond, only two groups still qualify: active-duty members of the Armed Forces who move under military orders for a permanent change of station, and employees or appointees of the intelligence community who move due to a reassignment.11Internal Revenue Service. Publication 15-A (2026), Employer’s Supplemental Tax Guide For everyone else, moving expense reimbursements are fully subject to FICA and must be reported on the W-2 as wages.
Small-Dollar Thresholds for Household, Farm, and Casual Work
Household Workers (the Nanny Tax)
Cash wages paid to a household worker in a private home are exempt from FICA if the total for the calendar year falls below a threshold that adjusts annually. For 2026, that threshold is $3,000.12Social Security Administration. Employment Coverage Thresholds Once you pay a household worker $3,000 or more in a calendar year, you owe FICA on the entire amount from the first dollar, not just the amount above the threshold. You report this liability on Schedule H, filed with your Form 1040. The threshold was $2,700 in 2024 and $2,800 in 2025, so anyone who previously fell just under the line should recheck the math each year.
Farm Workers
Farm worker wages are exempt from FICA unless one of two tests is triggered. Under the individual cash-pay test, you owe FICA if you pay a single farm worker $150 or more in cash during the year. Under the total expenditure test, you owe FICA on all farm labor if your total payments (cash and noncash) to all farm workers combined reach $2,500 or more during the year.13Internal Revenue Service. Publication 15 (2026), (Circular E), Employer’s Tax Guide If neither test is met, none of the farm wages are subject to FICA. The $2,500 test can catch employers off guard because it aggregates all farm labor spending; even if no single worker earns close to $150, hitting $2,500 in total makes every farm worker’s wages subject to FICA.
Casual Labor Outside Your Business
Cash wages for work that isn’t part of the employer’s trade or business are exempt from FICA if you pay the worker less than $100 during the calendar year.14Office of the Law Revision Counsel. 26 USC 3121 – Definitions Hiring a teenager to rake your leaves or help you move furniture qualifies, assuming you aren’t in the landscaping or moving business. Domestic service in a private home follows the household worker threshold described above and doesn’t fall under this provision.
Self-Employment Income Not Subject to SECA
Self-employed people don’t pay FICA directly. They pay the equivalent under the Self-Employment Contributions Act, calculated on Schedule SE, at the full combined 15.3%: 12.4% for Social Security up to the $184,500 wage base in 2026, and 2.9% for Medicare.15Internal Revenue Service. Self-Employment Tax (Social Security and Medicare Taxes) Several categories of income never enter the Schedule SE calculation.
No SECA is due if your net earnings from self-employment for the year are less than $400.16Internal Revenue Service. About Schedule SE (Form 1040), Self-Employment Tax That’s net earnings, meaning gross income minus allowable business deductions. Someone who grosses $5,000 but has $4,700 in legitimate expenses has net earnings of $300 and owes no SECA.
Rental income from real estate is generally excluded from net self-employment earnings, as long as you aren’t a real estate dealer and don’t provide substantial services to tenants (daily maid service at a short-term rental would cross that line). Dividends, interest, and capital gains from investments are also excluded. These income streams are taxed under the regular income tax rules but don’t flow through Schedule SE.
Distributions from qualified retirement plans and Social Security benefits are never subject to self-employment tax, regardless of whether you were self-employed or a W-2 employee during your working years.
One Thing That Isn’t Exempt: Wages Above the Medicare Thresholds
A common misconception runs the opposite direction. Beyond the standard 1.45% Medicare tax, a 0.9% Additional Medicare Tax applies to wages and self-employment income above certain thresholds: $200,000 for single filers, $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 amounts have stayed the same since the tax took effect in 2013 and are not indexed for inflation.
Only the employee pays the Additional Medicare Tax; the employer doesn’t match it. Employers must start withholding the 0.9% once your wages exceed $200,000 in a calendar year, regardless of your filing status. If your actual threshold is higher because you file jointly, you reconcile the difference on your tax return. If it’s lower because you file separately, you may owe additional tax when you file. There is no wage cap on Medicare.
What Happens If You Claim an Exemption You Don’t Qualify For
Claiming a FICA exemption you aren’t entitled to isn’t just an accounting error. Employers who fail to withhold and deposit FICA taxes face tiered penalties based on how late the deposit is: 2% if one to five days late, 5% if six to fifteen days late, and 10% if more than fifteen days late.18Internal Revenue Service. Failure to Deposit Penalty Those percentages don’t stack; a deposit sixteen days late owes 10%, not 17%.
The larger risk is the trust fund recovery penalty. FICA withholdings are held in trust for the government. If a business owner, officer, or anyone else responsible for payroll knowingly diverts those funds instead of depositing them, the IRS can assess a penalty equal to 100% of the unpaid tax against that individual personally. This penalty bypasses the corporate structure entirely and follows the person, not the business. It’s one of the few situations where the IRS will reach through a corporation or LLC to collect directly from an individual, and it’s assessed more often than most small business owners realize.