Social Security is a program in the United States that uses public funds to provide economic security for the public as a whole. Employers in the U.S. are required to pay Social Security taxes.
The money from these taxes is used to provide benefits for those individuals who have reached retirement age or are otherwise eligible to receive Social Security funds. This provides income for retired individuals so they have money to keep the economy flowing.
Social Security is also a government program that provides financial support for disabled individuals. Over the course of an individual’s life, they will pay a certain percentage of their income to the government in the form of Social Security taxes.
After an individual retires or becomes disabled, the government will send them monthly payments based upon how much they paid in Social Security taxes. Whether an individual is self-employed or works for an employer, they are entitled to Social Security benefits.
Social Security provides a number of different kinds of benefits, including:
- Retirement benefits. If an individual retires after the age of 62, they are entitled to retirement benefits. The amount of money they will receive is dependent upon the amount of money they made over the course of their lifetime. The later in life an individual files for retirement benefits, the larger those benefits will be, until the age of 70;
- Disability benefits. If an individual is disabled before they retire, they may be eligible for disability benefits. An individual may receive benefits roughly equal to what their retirement benefits would have been;
- Supplemental Security Income. This type of benefit is available to individuals who did not earn a large income over the course of their lives but they will need financial assistance. Supplemental security income is only available to individuals who are over 65, disabled, or blind.
- Survivor’s benefits. If an individual’s spouse is deceased and would otherwise be entitled to retirement or disability benefits, their spouse may receive the benefits on the deceased’s behalf. Surviving child benefits are also available for a biological child, adopted child, or step-child upon the death of a parent who was entitled to retirement or disability benefits.
What is Self-Employment?
An individual who works for themselves or is an independent contractor is considered self-employed. Employees are individuals who work for an employer.
This has an impact on what forms they receive to file their income taxes each year. If an individual is unsure of their employment classification, one way to determine their status is to examine what tax forms they receive each year.
A self-employed business owner will complete a schedule K-1. An independent contractor receives a 1099-MISC form. Employees receive W-2 tax forms.
What is the Difference Between Self-Employed vs. Employed by Someone Else?
The primary difference between being self-employed and being employed by an employer for the purposes of Social Security is that the self-employed individual must contribute twice as much money. Employers deduct Social Security taxes from their employees’ paychecks and match that contribution.
The combined contributions from the employee and the employer equals the employee’s required Social Security payment. In contrast, the self-employed individual would be required to make a full contribution when filing income taxes. The Social Security tax rate for self-employed individuals is approximately 15%.
How Do I Qualify for Benefits?
In order to qualify for Social Security benefits, an individual typically needs to accumulate 40 work credits. In general, an individual receives 1 credit for every $900 they earned as a self-employed individual. Since an individual is only permitted to earn up to 4 credits per year, they must work at least 10 years in order to draw Social Security benefits.
How is Social Security Different from Other Retirement Benefits?
Social Security benefits are different from other retirement benefits because they are paid on a different basis than other retirement benefits, such as pension plans. With a pension benefit plan, an individual’s retirement money is funded in advance by their employer.
In a pension plan, the money accumulates as an employee continues working additional years. When the worker retires, the money is already available to pay that worker.
On the other hand, the Social Security benefit program is considered a pay-as-you-go program. In other words, the employees who are working today are paying taxes into the program which are taken out of the program and paid as Social Security benefits. Individuals who are working today are paying for the benefits of workers who retire now.
Who is Eligible for Social Security Benefits Payments?
Whether or not an individual is eligible for Social Security benefits depends on several factors, some discussed above. The factors include:
- How long the individual has worked;
- Their lifetime earnings; and
- The individual’s age.
While an individual is working and paying taxes for Social Security, they are earning credits, as noted previously. To receive benefits, the individual must receive a minimum amount of credits. Generally, 4 credits is equal to one year of work. An individual who was born in 1929 or after is required to earn 40 credits in order to be eligible for Social Security benefits.
The amount of income an individual accumulates during their career determines the amount of their monthly benefit. An individual with higher career earnings will have a higher monthly benefit rate.
An individual may receive Social Security benefits when they reach 62 years of age. However, these individuals will not receive the full amount of benefits.
Full Social Security benefits are only paid when the individual reaches full retirement age. The full retirement age for individuals who were born in the year 1960 or later is 67 years of age.
It is important to note that if an individual is receiving Social Security retirement benefits, their family members may also be entitled to benefits. Family members that are eligible may include:
- Spouses age 62 or older;
- Former spouses, if they are 62 or older;
- Children up to the age of 18;
- Children up to the age of 19, if those children are full-time students that have not yet graduated high school; and
- Disabled children.
What if We Operate a Family Business?
A family may sometimes run a joint venture, a partnership, or another type of business. Each family member is required to report their share of the business earnings on separate self-employment returns. This applies even if the individuals are filing a joint tax return.
How Do I Apply for Social Security Benefits?
When an individual is ready for retirement or needs disability benefits, the standard procedure requires them to contact the Social Security Administration and file a claim. No additional measures are required for individuals who are self-employed.
Do I Need a Lawyer for Social Security Issues?
It is crucial to have the assistance of an experienced government lawyer for any Social Security issues you may face. Regulations governing Social Security are extremely complex.
An attorney can assist you with any aspect of Social Security. This includes tax issues, determining if you qualify for benefits, and filing for benefits.
If you are self-employed, an attorney can assist you with maximizing your accumulation of work credits while minimizing your required contributions. An attorney can also provide advice for filing taxes if you are self-employed.