In order to receive benefits through the Social Security Disability Insurance (SSDI) program, a person must establish both (1) that they are eligible for benefits, and (2) that they have a disability that precludes gainful employment for at least a year. Eligibility is based on the amount of time a person has been employed and has paid into the Social Security system, usually through payroll taxes. People who are employed by a business, organization, or individual can often establish the amount of time they have worked with documents such as W-2 forms, pay stubs, and tax returns. Self-employed individuals do not always have the same documents to establish their employment history, but they can still demonstrate eligibility for SSDI benefits. Likewise, they can meet the second main requirement for SSDI by showing that their disability precludes them from either their normal gainful self-employment or other forms of gainful employment.
How Payroll Taxes Fund Social Security Benefits
When a person has an employer, they typically only pay one-half of their payroll tax liability. The employer withholds payroll taxes from their paychecks and matches that amount. It then pays the taxes directly to the Internal Revenue Service (IRS). At the end of each tax year, the employer reports the person’s wages and taxes to the Social Security Administration (SSA). A self-employed person is responsible for paying their entire payroll tax liability.
Payroll tax liability is divided between Social Security and Medicare:
– In 2015, an employed person’s total liability is equal to 7.65 percent of their employment income, with 6.2 percent going to Social Security and 1.45 percent going to Medicare. The Social Security portion is often known as “FICA,” after the Federal Insurance Contributions Act. The employer matches the employee’s 7.65 percent contribution.
– A self-employed person’s payroll tax liability is equal to 15.3 percent of their earnings, with 12.4 percent going to FICA and 2.9 percent going to Medicare.
– For both employed and self-employed workers, FICA taxes are only payable on 2015 earnings up to $118,500. Medicare has no maximum taxable earnings.
Have You Paid Enough Into the System?
A self-employed individual is responsible for demonstrating to the SSA that they have paid into the Social Security system. The SSA assigns “Social Security credits,” or “work credits,” to a person for every quarter they work, earn above a certain amount, and pay payroll taxes. These are known as “quarters of coverage” (QCs), and since there are only four quarters in a year, a person can only earn four QCs per year.
In order to obtain a QC in 2015, a person must earn at least $1,220 during that quarter. The SSA periodically adjusts this and other amounts in what are known as “cost-of-living adjustments” (COLAs).
The minimum number of QCs required to be eligible for SSDI benefits is based on a person’s age when they became disabled. A person under the age of 24 needs at least six QCs to qualify for SSDI benefits. Between the ages of 24 and 31, a person needs at least half the total number of QCs they could have earned since age 21. For example, a 24-year-old needs six QCs, since they could have a maximum of 12 QCs (four quarters per year for three years since turning 21). A 30-year-old could earn a maximum of 36 QCs since age 21 (four quarters times nine years) and therefore needs 18 QCs. The SSA provides a chart showing the amount of QCs needed by people age 31 and older.
As long as a self-employed person can show that they have worked the required number of quarters and earned the required amount during those quarters, they can establish eligibility for SSDI benefits.
Are You Considered Gainfully Employed?
The second thing a self-employed person must prove is that they have a disability that prevents them from working for at least a year. The SSA does not require proof that a person is completely incapacitated, but instead that they have a disability that precludes “substantial gainful activity” (SGA). For a non-blind person, they must demonstrate that they are incapable of earning more than $1,090 per month. Anything above that amount is considered SGA. A person claiming SSDI due to blindness cannot earn more than $1,820 per month. These amounts are also subject to annual COLAs.
Get your SSDI claim started by scheduling a free and confidential consultation with the Law Offices of Russell J. Goldsmith. Contact us today online or at 1-800-773-8622.
If You Are Self-Employed (PDF file), Social Security Administration Publication No. 05-10022, April 2015
More Blog Posts:
How to Apply for SSDI Benefits in Maine and Beyond, Social Security Disability Lawyer Blog, July 1, 2015
What is SSDI? An Overview for Residents of Massachusetts and Other States, Social Security Disability Lawyer Blog, June 24, 2015
Qualifying for Social Security Disability Insurance, Social Security Disability Lawyer Blog, June 17, 2015