Social Security benefits for self-employed individuals: What you need to know 😎
Are you self-employed and wondering about Social Security benefits? There’s a lot to consider, but don’t worry–I’m here to guide you through it! In this post, I’ll cover everything you need to know about Social Security benefits for self-employed individuals.
What is Social Security?
Social Security is a federal program that provides retirement, disability, and survivor benefits to eligible individuals. It’s funded by payroll taxes that are paid by both employees and employers.
How do Social Security benefits work for self-employed individuals?
If you’re self-employed, you’re responsible for paying both the employee and employer portions of Social Security taxes. This means that you’ll pay a total of 12.4% of your net earnings, up to a certain limit ($142,800 in 2021), into Social Security.
Once you’ve paid into Social Security, you’ll be eligible for retirement, disability, and survivor benefits based on your earnings history.
How do I qualify for Social Security benefits as a self-employed individual?
To qualify for Social Security benefits as a self-employed individual, you must have earned at least 40 credits. You can earn up to four credits per year, based on your net earnings. In 2021, you’ll need to earn $1,470 in net earnings to earn one credit.
To qualify for retirement benefits, you must have earned at least 40 credits and be at least 62 years old. To qualify for disability benefits, you must be unable to work because of a medical condition that’s expected to last at least one year. To qualify for survivor benefits, you must be the spouse or child of a deceased worker who’s eligible for Social Security benefits.
How are Social Security benefits calculated for self-employed individuals?
Social Security benefits are calculated based on your average indexed monthly earnings (AIME). To calculate your AIME, the Social Security Administration (SSA) looks at your earnings history and adjusts your past earnings for inflation.
Once the SSA has calculated your AIME, they’ll use a formula to determine your primary insurance amount (PIA), which is the amount of your monthly benefit. The formula takes into account your AIME and the age at which you start receiving benefits.
When should I start taking Social Security benefits as a self-employed individual?
The age at which you start taking Social Security benefits can have a huge impact on the amount of your monthly benefit. If you start taking benefits at age 62, you’ll receive a reduced benefit. If you wait until full retirement age (between 66 and 67), you’ll receive your full benefit. And if you delay taking benefits until age 70, you’ll receive an increased benefit.
When you’re self-employed, you have more flexibility when it comes to deciding when to start taking benefits. You may want to consider your overall retirement plan, as well as your expected longevity and financial needs when making this decision.
Conclusion 😌
So there you have it–everything you need to know about Social Security benefits for self-employed individuals. Remember, as a self-employed individual, you’re responsible for paying both the employee and employer portions of Social Security taxes. But once you’ve paid in, you’ll be eligible for retirement, disability, and survivor benefits based on your earnings history. Be sure to consider all the factors when making decisions about when to start taking benefits, and consult with a financial advisor if you need more guidance.
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Image of a person sitting at their desk, looking at papers with a worried expression. This image represents the confusion and uncertainty self-employed individuals may feel when trying to understand Social Security benefits.
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An image of a person smiling and holding a Social Security card. This image represents the sense of relief and security that comes with understanding Social Security benefits as a self-employed individual.
