Q & A
I’ve been “self-employed” most of my life…am I going to get Social Security?
Complete Question: I’ve been told that you need to work the equivalent of 10 years in order to get Social Security. But most of my life I’ve worked odd jobs – like landscaping, painting, construction, etc. I’ve had a few temporary jobs, but definitely not 10 years worth. Some people call the work I’ve done “self-employed”, but I didn’t own a company or anything like that. Does this mean I’m not eligible for Social Security?
Answer: That is a great question, and as with many other Social Security questions, I will answer “it depends”. The work you described is considered “self-employed” for Social Security purposes. It does not matter whether or not you actually owned a company. What DOES matter is whether or not you reported the wages for those odd jobs to the IRS and paid taxes on them. For example, you mentioned construction work. Did the person who hired you give you a 1099? Even if you did not have a 1099, did you report any earnings for this work and pay taxes on it? If you did, the IRS would have required you to pay Social Security taxes.
Most people have heard of FICA taxes. FICA stands for the Federal Insurance Contributions Act and it requires employers to withhold taxes from employee earnings to fund the Social Security and Medicare programs. The employer also pays a tax equal to the amount withheld from employee earnings. A lesser known tax is SECA, which stands for the Self-Employed Contributions Act where the self-employed pay Social Security and Medicare taxes on net earnings. Under SECA, the self-employed pay BOTH the employee and the employer share of Social Security and Medicare taxes; however, the law allows them to deduct half of the self-employment tax as a business expense.
So what does this mean exactly? Currently, if you have a regular W-2 job (like the ones you mentioned where you were a temporary employee), the employer would pay 6.2% of your wages for Social Security taxes. You would also pay 6.2% of your wages. Therefore, if you are self-employed and do not have an official “employer”, you have to pay the entire Social Security tax of 12.4%. If you did not pay this during the year, you would pay it when you file for your taxes the following year (i.e. you would pay the taxes in 2015 for 2014 self-employment earnings). Other than that, the only major difference is that you pay the 6.2% tax for a W-2 job based on your gross earnings, while you pay the 12.4% tax for a self-employment job based on net earnings. This means that if you earned $20,000 gross in self-employment and had $3,000 in business deductions, you will pay 12.4% on $17,000.
So in order to answer your question, you have to ask yourself if you reported earnings on your self-employment income. If you did, did you earn enough between your temporary positions and self-employment to have 10 years’ worth of earnings to qualify for Social Security. If you are unsure, you can check how many credits you currently have (you need 40 credits, which equals 10 years) by creating a mySocialSecurity account at www.ssa.gov.
One other thing – remember that this self-employment rule applies to Medicare coverage, too. You pay twice as much (2.9% instead of 1.45%) as a self-employed individual in order to be eligible for Medicare.