Social Security and Medicare Taxes If you work as an employee in the United States, you must paysocial security and Medicare taxes in most cases. Your payments ofthese taxes contribute to your coverage under the U.S. social securitysystem. Social security coverage provides retirement benefits andmedical insurance (Medicare) benefits to individuals who meet certaineligibility requirements. In most cases, the first $72,600 of taxable wages received in 1999for services performed in the United States is subject to socialsecurity tax. All taxable wages are subject to Medicare tax. Youremployer deducts these taxes from each wage payment. Your employermust deduct these taxes even if you do not expect to qualify forsocial security or Medicare benefits. You can claim a credit forexcess social security tax on your income tax return if you have morethan one employer and the amount deducted from your combined wages for1999 is more than $4,501.20. Use the worksheet in chapter 3 ofPublication 505, Tax Withholding and Estimated Tax, tofigure your credit. If any one employer deducted more than $4,501.20, you cannot claima credit for that amount. Ask your employer to refund the excess. In general, U.S. social security and Medicare taxes apply topayments of wages for services performed as an employee in the UnitedStates, regardless of the citizenship or residence of either theemployee or the employer. In limited situations, these taxes apply towages for services performed outside the United States. Your employershould be able to tell you if social security and Medicare taxes applyto your wages. You cannot make voluntary payments if no taxes are due. Students andExchange Visitors Generally, services performed by you as a nonresident alientemporarily in the United States as a nonimmigrant under subparagraph(F), (J), (M), or (Q) of section 101(a)(15) of the Immigration andNationality Act are not covered under the social security program ifthe services are performed to carry out the purpose for which you wereadmitted to the United States. This means that there will be nowithholding of social security or Medicare taxes from the pay youreceive for these services. These types of services are very limited,and generally include only on-campus work, practical training, andeconomic hardship employment. However, you are covered under the social security program forthese services if you are considered a resident alien as discussed inchapter 1,even though your nonimmigrant classification ("F,""J," "M," or "Q") remains the same. Social security andMedicare taxes will be withheld from your pay. Nonresident Alien Students If you are a nonresident alien admitted to the United States as astudent, you generally are not permitted to work for a wage or salaryor to engage in business while you are in the United States. In somecases, a student, admitted to the United States in "F-1,""M-1," or "J-1" status, is granted permission towork and it is so noted on the student's copy of Immigration FormI-94, Arrival-Departure Record. Social security andMedicare taxes are not withheld from pay for the work unless thestudent is considered a resident alien. TaxTip: Any student who is enrolled and regularly attending classes at aschool may be exempt from social security and Medicare taxes on payfor services performed for that school. The Immigration and Naturalization Service (INS) permits on-campuswork for students in "F-1" status if it does not displace aU.S. resident. On-campus work means work performed on the school'spremises. On-campus employment includes work performed at anoff-campus location that is educationally affiliated with the school.On-campus work under the terms of a scholarship, fellowship, orassistantship is considered part of the academic program of a studenttaking a full course of study and is permitted by the INS. In thiscase, the educational institution endorses the Form I-20. Socialsecurity and Medicare taxes are not withheld from pay for this workunless the student is considered a resident alien. Employment due to severe economic necessity and for optionalpractical training is sometimes permitted for students in "F-1"status. Students granted permission to work due to severe economicnecessity or for optional practical training will be issued FormI-688B or Form I-766 by INS. Social security and Medicaretaxes are not withheld from pay for this work unless the student isconsidered a resident alien. Students in "M-1" status who have completed a course ofstudy can accept employment or practical training for up to six monthsand must have a Form I-688B or Form I-766 issued by INS.Social security and Medicare taxes are not withheld from "M-1"students' pay for these services unless the student is considered aresident alien. In all other cases, any services performed by a nonresident alienstudent are not considered as performed to carry out the purpose forwhich the student was admitted to the United States. Social securityand Medicare taxes will be withheld from pay for the services unlessthe pay is exempt under the Internal Revenue Code. Exchange Visitors Nonresident aliens are admitted to the United States asnonimmigrant exchange visitors under section 101(a)(15)(J) of theImmigration and Nationality Act through the sponsorship of approvedorganizations and institutions that are responsible for establishing aprogram for the exchange visitor and for any later modification ofthat program. Generally, an exchange visitor who has the permission ofthe sponsor can work for the same reasons as the students discussedabove. In these cases, permission is granted by a letter from theexchange visitor's sponsor or by endorsement from the program sponsoron Form IAP-66, Certificate of Eligibility. Social security and Medicare taxes are not withheld on pay forservices of an exchange visitor who has been given permission to workand who possesses or obtains a letter of authorization from thesponsor unless the exchange visitor is considered a resident alien. In all other cases, services performed by an exchange visitor arenot considered as performed to carry out the purpose for which thevisitor was admitted to the United States. Social security andMedicare taxes are withheld from pay for the services unless the payis exempt under the Internal Revenue Code. If you are a "J-1" visa holder, your spouse or child maybe permitted to work in the United States with the prior approval ofthe INS and issuance of Form I-688B or Form I-766. Nonresident aliens admitted to the United States as participants incultural exchange programs under section 101(a)(15)(Q) of theImmigration and Nationality Act may be exempt from social security andMedicare taxes. Aliens with "Q" visas are aliens whose employmentor training affords the opportunity for culture-sharing with theAmerican public. They are allowed to work in the United States for aspecific employer in an approved cultural exchange program. Theemployer must be the petitioner through whom the alien obtained the"Q" visa. Social security and Medicare taxes are not withheldfrom pay for this work unless the alien is considered a residentalien. Aliens with "Q" visas are not permitted to engage inemployment outside the exchange program activities. Refund of Taxes Withheld in Error If social security or Medicare taxes were withheld in error frompay you receive that is not subject to these taxes, contact theemployer who withheld the taxes for reimbursement. If you are unableto get a full refund of the amount from your employer, file a claimfor refund with the Internal Revenue Service on Form 843, Claimfor Refund and Request for Abatement, and attach a copy of yourForm W-2 to prove the amount of social security and Medicaretaxes withheld. Also attach a copy of your visa (if not stamped onForm I-94), INS Form I-94 and INS Form I-538,Certification by Designated School Official. You must alsoattach a statement from your employer indicating the amount of thereimbursement your employer provided and the amount of the credit orrefund your employer claimed or you authorized your employer to claim.If you cannot obtain this statement from your employer, you mustprovide this information on your own statement and explainwhy you are not attaching a statement from your employer. File the claim for refund (with attachments) with the IRS officewhere your employer's returns were filed. If you do not know whereyour employer's returns were filed, file your claim with the InternalRevenue Service Center, Philadelphia, PA 19255. International SocialSecurity Agreements The United States has entered into social security agreements withforeign countries to coordinate social security coverage and taxationof workers employed for part or all of their working careers in one ofthe countries. These agreements are commonly referred to astotalization agreements. Agreements with Austria, Belgium, Canada,Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, theNetherlands, Norway, Portugal, Spain, Sweden, Switzerland, and theUnited Kingdom are in effect. Other agreements are also expected toenter into force in the future. Under these agreements dual coverageand dual contributions (taxes) for the same work are eliminated. Theagreements will generally make sure that social security taxes arepaid only to one country. Generally, under these agreements, you will be subject to socialsecurity taxes only in the country where you are working. However, ifyou are temporarily sent to work in another country and your pay wouldnormally be subject to social security taxes in both countries, theagreement may provide that you can remain covered only by the socialsecurity system of the country from which you were sent. Moreinformation on any specific agreement can be obtained by contactingthe U.S. Social Security Administration. To establish that your pay is subject only to foreign socialsecurity taxes and is exempt from U.S. social security taxes(including the Medicare tax) as a result of an agreement, you or youremployer should request a statement from the appropriate agency of theforeign country. This will usually be the same agency to which you oryour employer pay your foreign social security taxes. The foreignagency will be able to tell you what information is needed for them toissue the statement. Your employer should keep a copy of the statementbecause it may be needed to show why you are exempt from U.S. socialsecurity taxes. You or your employer will need to request a statement from theforeign agency if you are working in a foreign country and wouldnormally be subject to U.S. social security taxes, but are exempt as aresult of an agreement. However, some of the countries with which theUnited States has agreements will not issue statements in these cases. Envelope: If the foreign agency refuses to issue the necessary statement,either you or your employer should request a statement that your wagesare not covered by the U.S. social security system. Request thestatement from the following address. U.S. Social Security Administration Office of International Programs P.O. Box 17741 Baltimore, MD 21235 Caution: Only wages paid on or after the effective date of the agreement canbe exempt from U.S. social security taxes. Self-Employment Tax Nonresident aliens are not subject to self-employment tax.Self-employment tax is the social security and Medicare taxes forindividuals who are self-employed. Residents of the Virgin Islands,Puerto Rico, Guam, the Commonwealth of the Northern Mariana Islands,or American Samoa are considered U.S. residents for this purpose andare subject to the self-employment tax. Resident aliens must pay self-employment tax under the same rulesthat apply to U.S. citizens. However, although a U.S. citizen employedby an international organization, a foreign government, or awholly-owned instrumentality of a foreign government is subject to theself-employment tax on income earned in the United States, a residentalien employed by such an organization or government does not have topay self-employment tax. If you are self-employed in both the United States and in a countrywith which the United States has a social security agreement (asdiscussed above), or you temporarily transfer your business activityto or from one of these countries, you may be exempt fromself-employment tax as a result of the agreement. To establish yourexemption, you should write to the foreign agency to which you payyour foreign social security tax if you are in the foreign country. Ifyou are in the United States, write to the Social SecurityAdministration, Office of International Programs, P.O. Box 17741,Baltimore, MD 21235, for a determination of your social security taxliability under the agreement. Self-employment income you receive while you are a resident alienis subject to self-employment tax even if it was paid for services youperformed as a nonresident alien. Example.Bill Jones is an author engaged in the business of writing books.Bill had several books published in a foreign country while he was acitizen and resident of that country. During 1999, Bill entered theUnited States as a resident alien. After becoming a U.S. resident, hecontinued to receive royalties from his foreign publisher. Billreports his income and expenses on the cash basis (he reports incomeon his tax return when received and deducts expenses when paid).Bill's 1999 self-employment income includes the royalties receivedafter he became a U.S. resident even though the books were publishedwhile he was a nonresident alien. Deduction for one-half of self-employment tax.If you must pay self-employment tax, you can deduct one-half of theself-employment tax paid in figuring your adjusted gross income. More information.Get Publication 533for more information about self-employment tax.