SOCIAL SECURITY : NOT JUST ANOTHER TAX
Do You Know How to Properly Enact Religious Exemptions ?
Many of us have heard that politics and religion don ’ t mix . Perhaps this saying originated in 1955 when the mixing of the two was put to the test .
Originally enacted by Congress in 1935 , the Social Security Act , or the Old Age , Survivors and Disability Insurance ( OASDI ), was extended in 1955 to include farm operators . Taking the position that Social Security was just another tax , the U . S . government looked to the agriculture community to contribute their fair share to the collective purse . However , this stance did not go over well among those who , for religious reasons , were opposed to the government ’ s welfare system and ultimately viewed Social Security as another form of public assistance .
The extension of the Social Security Act divided Plain community farmers with regard to how the new government-mandated responsibility should be addressed . Some voluntarily paid the tax . Others , regardless of their candid disapproval of the tax obligation , opened bank accounts from which the IRS could draw to pay the liens against individuals in an effort to maintain compliance with the governmental regulations . Still another group of farmers , those who wished to explicitly obey the direction of their church , outright refused to pay or provide the means by which the tax could be collected .
To raise awareness of the position the Social Security Act had put them in , a petition containing the signatures of 14,000 Plain community farmers was presented to Congress . In it , taxpayers respectfully inquired whether any harm would be done if they stopped paying into Social Security ( and opted out of any benefits ) due to their religious beliefs .
In 1961 , the IRS responded with a statement that recognized the Plain community ’ s stance that “ Social Security payments , in their opinion , are insurance premiums and not taxes . They , therefore , will not pay the ‘ premium ’ nor accept any of the benefits .” However , it wasn ’ t until the Medicare bill was enacted in 1965 that certain religious groups were formally allowed to become exempt from paying Social Security and Medicare taxes .
Are You Exempt ?
For an individual to be considered exempt from Social Security and Medicare taxes , they must complete a one-time application ( Form 4029 ) with the IRS to request the exemption . After receiving the application , the IRS will either approve or deny the request .
But if you ’ re an employer , it ’ s not enough for your employee to complete Form 4029 . For your employee ’ s wages to actually be considered exempt from Social Security and Medicare taxes ( and for you not to be required to withhold these taxes ), you have to have an approved Form 4029 exemption on file as well .
We are currently aware of situations in which an individual has received the exemption , but the employer has not . As a result , Social Security and Medicare taxes are still required to be withheld from the exempt employee ’ s pay . When this happens , you are also required to pay the matching portion of these taxes . Additionally , even if you have the exemption , but you employ an individual who does not , you are still responsible for withholding ( and matching ) the Social Security and Medicare taxes for that nonexempt employee .
Note : The Form 4029 exemption can be rescinded at any time by sending a letter to the IRS that states you are no longer a member of , or that you no longer follow the teachings of , the religious group under which you initially claimed the exemption . Keep in mind that if you had Social Security and Medicare taxes withheld while a Form 4029 exemption was in effect , rescinding the exemption will not grant you the benefits that would have accumulated from the time the exemption was first put in place until the date the exemption was rescinded .
If you or your employees are claiming exemption under Form 4029 , but as the employer you are not , consider employment arrangements , such as working with an exempt employee leasing company . This way , Social Security and Medicare taxes are not paid unnecessarily . I am happy to work with you to examine your options and obligations . Give me a call to learn more .
by : Darlene Finzer , CPA , QKA , CSA Principal & Director of Benefit Plan Audit Services
122 Fourth St . NW , P . O . Box 1020 New Philadelphia , OH 44663
330.308 . 6867 darlene . finzer @ reacpa . com