Can You Collect Social Security If You Are Self Employed?

Can You Collect Social Security If You Are Self Employed? Answered Here

Are you wondering can you collect social security if you are self employed? Here is more information about it including an explanation of the different taxes that you need to pay if you start self employment.

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Computing Self-Employment Tax

The 3 most frequent taxes for the self employed are the self-employment tax, federal taxation, and state taxation.

Self employment tax is 15.3% for the first $106, 800 of earned income and 3.9% for all earned income above $106, 800.

Self employment tax is evaluated to a specific type of cash called earned cash or compensation cash.

Unearned income isn’t subject to self employment tax. We will talk more about ” unearned income tax filing requirements in future articles.

The individual facts and terms of your case will determine your plan for decreasing your total tax obligation, not only yourself employment taxation.

A basic understanding of what getting earned income and paying self control tax entitles you to is required.

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Social Security Benefits For Self Employed

The main advantage of having income subject to self employment taxation is becoming eligible for social security benefits.

Social Security Administration requires you take a particular number of quarters as among the standards for eligibility for social security benefits and disability benefits.

The Conservation and Energy Act of 2008 put some important changes to the optional methods of calculating self employment tax.

These modifications especially impact farmers and self-employed taxpayers whose self employment income is less than $4,200 or even a loss.

There are two optional procedures for self employed people to choose from.


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Let’s have a look at two distinct strategies, one for taxpayers trying to minimize their self employment taxation and one for those seeking to maximize their total tax savings.

For example, one taxpayers case may indicate a need to minimize his/her self employment tax.

Some taxation planning strategies to convert earned compensation cash or earned cash into unearned cash are the following:

  • Pay rent to the owner at the maximum allowed
  • Take distributions or pass through cash from a Sub S corporation
  • Establish fringe benefit plans – Establish qualified deferred compensation plans and retirement plans

Every one of those strategies transforms earned cash to unearned cash and therefore are no longer subject to self employment tax, a saving of potentially 15.3%.

For other taxpayers it might be more advantageous to try and increase the self employment tax.

You might wish to do that to be eligible for social security benefits or be eligible for several tax credits.

There are 3 significant benefits from electing the optional methods:

  1. Qualify taxpayer for social security benefits
  2. Generate a higher earned income credit
  3. Generate a higher childcare credit.


Case Study: Mr And Mrs Smith in the year 2007 reported a loss of $2,000 on his schedule C and were happy they didn’t owe any federal taxes. They explain that Mrs Smith actually works in the company, but hasn’t received any wages for the services as an employee due to the additional administrative matters and payroll taxes involved with payroll. The Smith’s have two children. Proper tax planning would uncover a different approach. One particular approach might consist of earning income and also being eligible to collect some of the social security benefits.


Finally, I hope you have a clearer understanding of the question, ‘Can you collect social security if you are self employed?’


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