Self-Employed

Self Employed? Tax filings are different; benefits don’t change

Call them what you will: self-employed, gig workers, solopreneurs — more people than ever are leaving the traditional workplace to be their own boss and go into business for themselves. How does that affect their Social Security? Turn to an Advisor with the RSSA® credential to guide you through the process…successfully.

The truth is that Social Security benefits really don’t vary whether you’re self-employed or are an employee in a business; the major difference is that self-employed workers must pay both the employee and employer portions of Social Security taxes.

What you need know if you’re self employed:

• Instead of withholding Social Security taxes from each paycheck—you pay all the Social Security taxes on your earnings when you file your annual federal income tax return.
• Self-employed individuals earn Social Security work credits the same way employees do and qualify for benefits based on their work credits and earnings.
• How much you pay in Social Security taxes is based on net income.
• Deductions that you claim (such as business expenses) can make your taxable income substantially lower, but it can also potentially decrease your Social Security benefits later.
• Your Social Security benefit payment is calculated based on your 35 highest-earning years.
• If you earned $400 or less, Social Security taxes will be waived.

The takeaway:

The central concept facing self employed individuals is whether to reduce income by taking every available deduction to reduce taxes, with the risk that it may also reduce the size of their Social Security benefit payment in retirement. There’s no one right way to proceed and your strategy very much depends on your unique circumstances. Registered Social Security Analysts® have the education and training provided by NARSSA (the National Association of Registered Social Security Analysts), to help guide you on what’s best in your situation — to ensure you file wisely and collect all of the benefits you may be entitled to upon retirement.