Social Security: Self employed? What you need to know about Social Security credits
There are some important things about Social Security you need to know if you’re self-employed. It’s essential to know them because it could mean that you or your spouse end up short of the credits you need to qualify for Social Security retirement, disability or survivor benefits.
Here are some things you may not know:
• Net, not gross. For people who are self-employed, we count your net income, not your gross income, when figuring your credits of coverage and the amount of your future Social Security benefits. In 2011, you earn one credit for each $1,120 of net income you earn, up to four annual credits. Net earnings for Social Security are your gross earnings from your trade or business, minus your allowable business deductions and depreciation. We also use your net income when figuring your benefit amount so a higher net income results in a higher benefit.
• Using the Optional method of reporting. Effective tax year 2008 and after, the maximum amount reportable using the optional method of reporting will be equal to the amount needed to get four work credits for a given year. For example, for tax year 2011, the maximum amount reportable using the optional method of reporting would be $4,480 ($1,120 x 4).
• Credit where credit is due. If you and your spouse own and operate a business together and expect to share in the profits and losses, you may both be entitled to receive Social Security credits, even if there is no formal partnership agreement. For each of you to receive credit for your share of the business income, you must file separate self-employment returns (Schedule SEs), even if you file a joint income tax return. If you don’t file separate Schedule SEs, all the earnings from the business will be reported under only one person’s Social Security number. In that case, only one of you will receive Social Security credits and the valuable protection they provide.
So this year if you’re self employed, discuss your family business arrangement and how you report your earnings. You can learn more at http://www.socialsecurity.gov. You’ll also find information about the number of credits you need to qualify for retirement, disability, and survivor benefits. For specific questions about taxes, visit the Internal Revenue Service at http://www.irs.gov.
kathy petersen is a public affairs specialist for social security, denver region. you can write her c/o social security administration, 605 main, suite 201, rapid city, sd, 57701 or via e-mail at firstname.lastname@example.org. next week kathy debunks myths about social security.
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