What Is Excluded From Social Security Wages?

Social Security wages refer to the earnings of an individual that are subject to Social Security and Medicare taxes, collectively known as FICA taxes. These taxes are fundamental to funding the Social Security program, which provides essential benefits for retirees, individuals with disabilities, and survivors of deceased workers. While most forms of compensation are included in Social Security wages, certain types of payments or earnings are specifically excluded by federal tax law. Understanding these exclusions is important for both employers and employees to ensure accurate payroll processing and tax compliance.

Specific Excluded Compensation Types

Employer contributions to qualified retirement plans, such as 401(k)s, 403(b)s, or governmental 457(b) plans, are generally excluded from an employee’s Social Security wages. However, any elective deferrals made by an employee into such plans are typically still subject to FICA taxes. This distinction means that while the employee’s direct contributions are taxed, the employer’s matching or non-elective contributions often are not.

Employer-provided health insurance premiums are another common exclusion from Social Security wages. When an employer pays for an employee’s health insurance, these amounts are generally exempt from FICA taxes. This applies whether the premiums are paid by the employer or deducted on a pre-tax basis from the employee’s paycheck.

Qualified educational assistance programs allow employers to provide tax-free benefits for an employee’s education. Up to $5,250 per employee annually for tuition, fees, books, supplies, and equipment can be excluded from Social Security wages. This exclusion also temporarily includes employer payments for an employee’s qualified student loan principal or interest until January 1, 2026. Similarly, dependent care assistance programs, which help employees pay for child or dependent care, allow for an exclusion of up to $5,000 per year from gross income, with a $2,500 limit for married individuals filing separately.

De minimis fringe benefits are those with a value so small that accounting for them would be administratively impractical. These benefits might include occasional snacks, holiday gifts of minimal value, or occasional use of an employer’s photocopier. However, cash or cash-equivalent benefits, such as gift cards, generally cannot qualify as de minimis, regardless of their value. Group-term life insurance coverage provided by an employer is also excluded from Social Security wages for coverage up to $50,000. Any coverage exceeding this $50,000 threshold is subject to FICA taxes.

Payments received as workers’ compensation for an injury or illness are generally not subject to Social Security taxes if they are made under a workers’ compensation law. Additionally, certain types of severance payments may be excluded from Social Security wages. While most severance pay is subject to FICA, payments specifically structured as Supplemental Unemployment Benefits (SUB) can be exempt if they are linked to the receipt of state unemployment compensation, are not paid in a lump sum, and result from an involuntary termination.

Payments Based on Worker Status

Non-resident aliens temporarily present in the U.S. under specific visa types, such as F-1, J-1, M-1, or Q-1 visas, are often exempt from FICA taxes. This exemption applies to wages earned for services performed within the scope of their visa’s purpose, provided they maintain their non-resident alien status for tax purposes. The duration of this exemption varies, typically up to five calendar years for students and two calendar years for scholars.

Wages paid to a child under the age of 18 who is employed by their parent in an unincorporated business are also excluded from Social Security wages. This exemption applies if the business is a sole proprietorship or a partnership where each partner is a parent of the child. However, this exclusion does not apply if the business is incorporated or if the partnership includes non-parent partners.

Student nurses and internes performing services for a hospital or a nurses’ training school where they are pursuing a course of study may also be exempt from FICA taxes. This exclusion applies when their educational relationship with the institution is considered to be the primary purpose of their presence, outweighing their employment relationship.

Ministers of a church or members of a religious order, when performing services in the exercise of their ministry, are generally treated as self-employed for Social Security purposes. This means they pay self-employment tax (SECA) on their earnings rather than having FICA taxes withheld as employees.

Exclusions Based on Payment Thresholds

For domestic service wages, such as those paid to household workers, Social Security and Medicare taxes do not apply if the cash wages paid to the worker in a calendar year are less than a specific annual threshold. For 2025, this threshold is $2,800. If the wages meet or exceed this amount, then FICA taxes apply to the full amount.

Wages for agricultural labor also have specific thresholds for FICA tax purposes. Generally, Social Security and Medicare taxes apply to agricultural wages if an employer pays cash wages of $2,500 or more in a year to all agricultural employees. Alternatively, if the employer’s total annual payroll for agricultural labor is less than $2,500, then wages paid to an individual agricultural worker are subject to FICA only if that worker receives $150 or more in cash wages from that employer during the year.

For 2025, payments to election workers are excluded from Social Security wages if the annual amount paid is below $2,400. These specific thresholds for domestic, agricultural, and election workers are subject to annual adjustments by the Social Security Administration or the IRS to account for changes in the national average wage index.