Tag: social security and self-employment

Social Security Credits and Self-Employment

Social Security Credits and Self-Employment

Self Employment Tax
Social security credits are the key to receiving benefits.

One of the main stipulations for qualifying for Social Security benefits is to pay the Social Security payroll tax (a.k.a. the FICA tax) out of your income. Depending on how much you earn (and therefore, how much you pay), you will earn Social Security credits. These Social Security credits help determine whether you qualify for certain Social Security benefits at certain ages. No one has to have more than 40 credits (or 10 years of work) to qualify for any of the benefits.

However, this system exists for people employed by companies that take Social Security taxes from your paycheck. It can be a little bit more complex for self-employed individuals since Social Security taxes won’t be automatically withdrawn from your paychecks.

Paying Social Security Tax While Self-Employed

When an employer takes out money from your paycheck for Social Security, they match the money that they take out. This means that when self-employed, you will have to not only withhold money from your earnings for the employee portion of the Social Security taxes, but you will also have to match that portion as the employer as well.

However, most self-employed individuals do not receive bi-monthly paychecks like traditional employees do. So, you don’t need to take out Social Security taxes twice a month. Instead, you can pay all the Social Security taxes that you owe when you file annual federal income tax return. This includes the employee portion and the matching employer portion. 

Fill out Schedule SE. This is the Self-Employment Tax section of your tax return. The federal government uses this information to calculate the benefits you qualify for.

The Social Security tax rate is 6.2 percent. This means that if self-employed, you will need to pay 12.4 percent in Social Security taxes. You will also receive an additional 2.9 percent in Medicare taxes. This means that you will be responsible  for a total of 15.3 percent in employment tax.

Earning Social Security Credits While Self-Employed

Pay these Social Security taxes as both employee and employer, and you will earn the Social Security credits needed. While it may seem like you have to pay twice as much as regular employees on the surface, this is not quite true. Employers take into account the Social Security taxes they have to match when agreeing to an employee’s wage structure or salary. This means that the employee receives less pay.

You can write off a few tax deductions when self-employed that could help you reduce your Social Security taxes. For more information about earning Social Security credits while self-employed, be sure to schedule a free consultation with SSDA USA today by calling 602-952-3200 to speak with one of our attorneys. You can also get in touch with us via our LiveChat feature.

This is attorney advertising. SSDA, LLC is a group of attorneys that pursues claims for Social Security Disability benefits on behalf of its clients against the Social Security Administration. SSDA, LLC is in no way a part of the Social Security Administration. Further, the information on this blog is for general information purposes only. Nothing herein should be taken as legal advice. This information is not intended to create, and receipt or viewing does not constitute, a representative-client relationship.