There are benefits to being self-employed. From setting your own hours and rates to not reporting to a superior, self-employment offers a level of freedom not found in many jobs. Unfortunately, this level of freedom is not always easy. Many self-employed individuals feel no one is there for them when things take a turn for the worse. There are no paid vacation days, sick days, and most self-employed people must pay for their health insurance. You also must ensure that you pay all your required taxes, including your Social Security taxes. This could prove vital if you develop a medical condition or disability that prevents you from working.
Most individuals who make contributions into the Social Security Disability (SSD) program do so through payroll deductions from the payroll check provided by their employer. However, if you are self-employed, you cannot rely on the accounting or payroll department to handle your Social Security contributions. Instead, you must report your income directly to the IRS and pay all required taxes.
If you have worked long enough and paid all your required taxes, you are eligible to apply for Social Security Disability Insurance (SSDI) benefits if you become disabled. However, the application process is not easy and it might present additional challenges if you have not complied with your tax obligations over the previous years. Our Fayetteville disability lawyers are here to help you. Call (479) 316-0438 to schedule an appointment to discuss what steps you need to take to apply for SSD benefits.
HOW IS THE SSD PROGRAM FUNDED?
The SSD program is considered to be an insurance program. As such, one must make contributions to the program to qualify for coverage. Typically employees will see a 6.2% payroll deduction on earnings of up to $117,000 and a 1.45% Medicare tax. Your employer also matches your 6.2% Social Security contribution. However, if you are self-employed, the manner of paying your Social Security taxes differs. Rather than paying just the worker’s Social Security tax, you will be expected to pay the full 12.4% Social Security tax yourself. If you have wages through an employer and income through self-employment, then you should pay the taxes on your wages first. As of 2021, the first $142,800 of your self-employment income is subject to Medicare and Social Security taxes. Any income above this threshold is subject only to Medicare tax.
TO QUALIFY FOR SSD BENEFITS, YOU MUST HAVE SUFFICIENT WORK CREDITS
While Supplemental Security Income (SSI) benefits do not carry a work credit requirement, SSD benefits do. Because SSD is an insurance program for workers who become sick, injured or otherwise unable to work, to receive SSD benefits you must have worked and paid into the Social Security system sufficient amounts through taxes. Each year, you may earn up to four work credits. One work credit is earned for each $1,200 of net income.
If your net earnings are less than $400 and your gross earnings are $600 or more when profits are less than $1,600, you may use the option reporting method so that your earnings still count towards Social Security. However, you may use this alternate reporting method only 5 times in your life except if you are a qualifying farmer. Qualifying farmers may use this method each year if they so choose. Working with an experienced Arkansas Social Security disability attorney can help you understand this method of reporting and how it applies to your particular financial situation.
The number of work credits you will need are dependent on your age. Generally speaking, the older you are at the time of onset of your injury or condition, the more work credits you will need. If you were born prior to 1929, you will need 40 credits, ten years of work, to qualify for benefits. People born after 1929 will require less work credits. General situations of eligibility can include:
- A worker who becomes disabled prior to age 24– Workers who became disabled prior to their 24th birthday will typically require 6 work credits or 1 and a half years of work in the three years previous to your disability or illness.
- A worker who becomes disabled between ages 24 and 30 – Workers who become disabled in this age range typically require credits for half the time between age 21 and the onset of the illness or disability.
- A worker who becomes disabled between ages 31 and 42 – A worker who becomes disabled during this range of ages would typically need 20 work credits or 5 years of work.
- A worker who becomes disabled at age 52 – A worker who has an onset date at age 52 would likely require 30 credits or 7 and a half years of work.
The foregoing is not exhaustive and there can be exceptions to the general guidelines as stated above.
Self Employment and Substantial Gainful Activity
Part of the approval process for SSDI or SSI disability benefits is demonstrating the inability to engage in substantial gainful activity (SGA). In 2021, this means you cannot make more than $1,310 a month if you want to qualify for Social Security Disability Insurance benefits. If you are blind, you could earn up to $2,190 a month and still qualify.
The Social Security Administration acknowledges that net profits is not an accurate indication of your actual income if you are self-employed. Therefore, the SSA will employ what is referred to as “The Three Tests” to determine if your employment activity and income reaches the threshold of substantial gainful activity.
Significant Services and Substantial Income Test
According to the SSA, if you provide significant services to your business and earn substantial income, you are engaging in SGA. But what does the SSA mean by each of these thresholds?
If you are the sole proprietor and employee in your business, your services are considered significant. If you are the sole owner and worker and your personal income from your business exceeds $1,310 a month, you are engaging in SGA. Therefore, your application will be denied.
What if you have a partner or employees? For your services to be considered under these circumstances, you would have to contribute more than half of the management time to the business or work 46 hours more a month.
To define your income, the SSA will subtract some specific items from your monthly revenue. For example, if you receive free help, such as from family members, do not pay rent, or are given equipment, the SSA will subtract the value of these items before determining if your income is substantial. Any funds spent on disability-related expenses will also be deducted from your net income. The SSA is working to calculate your countable income.
As stated above, self-employment income is considered substantial if it exceeds $1,310 a month. However, in some cases, income that is lower than $1,310 could also be considered substantial. For example, if you make the same amount you were before the onset of your disability or if your income is similar to what other non-disabled individuals make engaged in the same business.
If the Social Security Administration determines that you are not doing significant services or earning substantial income, it will conduct two additional tests. The first is the comparability test.
The comparability test looks at your work in relation to the same work performed by an unimpaired person in your community who is engaged in the same or similar business. If the Social Security Administration finds that the work is comparable, then your self-employment would be considered SGA for disability purposes, regardless of your actual income. When making this determination, the SSA will look at your job duties, related skills, work efficiency, hours worked, and energy spent. It is important to remember that this test focuses on work activity, not the value of the work.
Work Value Test
Next, the SSA will look at the value of the services you perform for your business. If the value of your contribution to the business exceeds $1,310, then you are engaged in SGA despite any comparison with other self-employed individuals. Furthermore, if it would cost more than $1,310 a month to hire another person to do your job, you are engaged in SGA and will not qualify for SSDI.
MUST I SATISFY ANY OTHER REQUIREMENTS TO QUALIFY FOR SELF-EMPLOYED SOCIAL SECURITY BENEFITS?
The foregoing has discussed one of the non-medical program requirements. That is, the work credit program requirement. The SSD program also has a number of other qualifications including:
- Financial eligibility – Those who apply for the SSD program must be unable to work and earn significant income. This is measured and determined through substantial gainful activity (SGA).
- Medical eligibility – To receive SSD benefits, one must have a injury or impairment that is severe. A severe impairment causes significant limitations in the things you are able to do and the work you are able to perform.
- Insufficient RFC to perform other work – RFC, or residual functional capacity, refers to the things that you are still able to do despite your severe impairment. The Social Security Administration determines if you are able to perform your past work or if there is alternate employment available to you.
Supplemental Security Income Benefits for a Self-Employed Person
Self-employment has a number of risks to counter-balance the many advantages it affords. In some situations, someone will become disabled before earning enough work credits to qualify for Social Security Insurance Disability benefits. In other cases, you simply might have neglected making the necessary social security tax payments. However, you could still apply for Supplemental Security Income.
SSI is not dependent on your work history, earning records, or work credits. To be eligible for SSI, you must have a qualifying medical impairment and meet the SSA’s stringent financial requirements. Before considering your disability, the SSA will examine your income to determine if you are engaged in SGA. Additionally, you are only permitted to have a limited amount of resources and assets. Excluding your home and one vehicle, an individual’s total financial resources and assets cannot exceed $2,000, including bank accounts, investments, and anything that could be used to pay for food or shelter. To discuss the eligibility requirements for SSI, contact our Springdale disability lawyers.
Our Experienced Arkansas Social Security Disability Lawyers Assist the Self-Employed to Apply for Benefits.
If you have are self-employed and wondering about the future or if you have suffered a severe injury or illness that has forced you to stop working, the Bella Vista, AR social security disability lawyers at the Law Practice of Ken Kieklak may be able to help. For more than 20 years our Rogers, AR disability lawyers have worked with hard-working and dedicated Arkansans. To schedule your free and confidential consultation, call (479) 316-0438 or contact us online.