What Social Security Benefits Imply for Self-employed Americans

by | Published on Oct 4, 2017 | Social Security Disability

Social Security retirement benefits and social security disability benefits, the latter involving a medical records review to assess the disability, are lifelines for many Americans. Most Americans who pay into Social Security work for an employer. 6.2% is deducted as part of the Social Security tax from an employee’s pay check (up to a certain income level) by the employer, who then matches that contribution. The same holds true for the 1.45% Medicare tax you pay. These taxes are sent to the IRS (Internal Revenue Service) by the employer. The employer then reports the worker’s wages to Social Security.

Consider self-employed people who either own a business, or carry out a trade or profession as a partnership or on one’s own. If you are in a business for yourself, and have net earnings of more than $400 a year, you are considered self-employed. You must be engaged in what Social Security calls a “trade or business.” For example, take the case of people engaged in the writing profession. An author who writes a book in his spare time but has nothing to do with the book afterwards is not in a “trade or business” because it is a one-time thing. However, a writer who writes a book, brings out new editions and delivers lectures about the book is considered by Social Security to be engaged in a writing or editing trade or business.

Self-employed people are both employer and employee, which means that they have to pay both parts of the above mentioned taxes, i.e. 12.4% for Social Security and at least 2.9% for Medicare (income limits are applicable here). However, you can recover some of the amount because you can deduct the extra social security and Medicare taxes on your income taxes.

  • The self-employment taxes are paid on your net earnings, or the money you get paid minus the expenses. If you are running a business that requires travel, travel costs could be subtracted from your income.
  • If one’s net earnings from his/her business amount to more than $400 a year, they must report their earnings using the Schedule SE (self-employment) form and submit it to the IRS along with their other tax forms. There are income tax software programs that can fill out these forms automatically.
  • To claim future benefit, it does not matter whether a person is working for another employer or is self-employed. You have to work at least ten years to qualify for benefits. The SSA bases the benefit amount on the 35 highest income earning years you have worked. Social Security offers you the convenience of setting up a “My Social Security Account” at the SSA’s website, which enables you to find out what your benefit may look like in the future.

At our medical review company, we keep abreast with all social security updates because they may have a bearing on social security related medical litigation. A 2014 report from CareerBuilder says that an estimated 10 million Americans hold self-employment jobs in management, housekeeping, construction, landscaping, personal care, and web development among other fields. Information such as the above is important for these groups of Americans, and which Social Security lawyers can assist with.

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