Taxation in the US: Payroll tax (Federal Insurance Contributions Act (FICA)) Part 2

Some aliens on temporary work assignment.

When a person temporarily works outside their country of origin, the person may be covered under two different countries' social security programs for the same work. In order to relieve a person of double-taxation, certain countries and the United States have entered into tax treaties, known as totalization agreements.

Aliens whose employer sends them to the United States on a temporary work assignment may be exempt from paying FICA tax on their earnings from working in the United States if there is a totalization agreement between the United States and the worker's home country. Countries who have such a tax treaty with the United States include Australia, Austria, Belgium, Canada, Chile, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary,  Ireland, Japan, Luxembourg, Netherlands, Norway, Poland, Portugal, Slovakia, South Korea, Spain, Sweden, Switzerland, and United Kingdom.

In order to claim an exemption from paying FICA tax, the alien worker must be on a temporary assignment of no more than five years and the alien worker must have a certificate from the country stating that the worker will continue to be covered by the country's social security system while the worker is in the United States.

Some family employees.

When a parent employs a child under age 18 (or under age 21 for domestic service), payments to the child are exempt from FICA tax. The exemption also applies when a child is employed by a partnership in which each partner is a parent of the child. The exemption does not apply when the child is employed by a corporation or a partnership with partners who are not the child's parent.

Foreign governments and some international organizations.

Foreign governments are exempt from FICA tax on payments to their employees. International organizations are also exempt if the organization is listed in the International Organizations Immunities Act.

If an employee is a U.S. citizen, then the employee must typically pay self-employment tax on earnings from work performed in the United States.

Services performed by certain individuals hired to be relieved from unemployment.

If a state or local government pays individuals for services performed to be relieved from unemployment, the payments to the individuals are exempt from FICA tax. The services must not be performed by individuals under other types of programs. Payments are not exempt from FICA tax if the program's primary purpose is to increase an individual's chances of employment by providing training and work experience.

Services performed by inmates.

Payments to inmates of a prison for services performed for the state or local government that operates the prison are exempt from FICA tax, regardless of the location where the services are performed. Services performed as part of a work-release program are exempt from FICA tax if and only if the individuals are not considered employees under common law, such as when the individual has control over what work is done and how the work is done.

Services performed by patients.

Payments to patients of an institution for services performed for the state of local government that operates the institution are exempt from FICA tax. Services performed by patients as part of an institution's rehabilitative program or therapeutic program are exempt from FICA tax.