While wage earners pay Social Security taxes through withholding from their paycheck, this does not mean that you cannot qualify for Social Security disability benefits if you are self-employed.
Whether you are a small business owner or an independent contractor, you still qualify for Social Security disability because you pay Social Security taxes on a quarterly or annual basis when you submit a payment with your income tax return or your estimated taxes. Although you do not have SSDI deductions automatically withheld from you paycheck, you are just as eligible for disability benefits through the Social Security Act as persons that are employed by another individual or company.
Self-employed workers qualify for SSDI benefits in terms of employment requirements in the same way as employees. You earn a credit for a certain amount of income earned each year up to four credits per year. For example, you would earn a credit for every $1,260 earned during 2016 up to a maximum of 4 credits if you earn $5,040 during the year. The number of credits needed to qualify for benefits depends on your age on the date of disability. The maximum requirement is 40 credits (i.e., ten years of employment) for those who retire at age 62 or older. Individuals in this age group generally must have earned at least twenty of these credits during the prior ten years immediately preceding their becoming disabled. If you suffer disability at an extremely young age, you might need as few as six credits. Because the number of units necessary to qualify for benefits depends on your age at disability and the income needed per credit changes, you should seek legal advice if you have specific questions about whether you qualify.
While you only need the minimum number of credits to qualify for Social Security disability, the amount of benefits you are entitled to receive is impacted by the amount of income you earn. Earnings from all jobs combined with any self-employment income will dictate your level of benefits. More substantial income declared on your tax returns means that your average indexed monthly earnings (AIME) will be higher. As this amount rises, the benefits you receive when you qualify for Social Security disability also increases. There is an important difference in the calculation of this amount if you are self-employed because your net profits determine your benefit level. In other words, the income that is relevant if you own a business is your net profits after your business expenses are deducted from your gross revenue.
If you have not qualified for SSDI benefits because you have inadequate credits as a self-employed applicant, you might still qualify for Supplemental Security Income (SSI) benefits. This form of disability benefits is dependent on your income level rather than satisfaction of a minimum amount of employment. The amount of disability benefits payed through SSI are not as substantial as those paid through SSDI. However, the process for determining if you are disabled is comparable under both programs.
Prior to evaluating whether you have a disability, the SSA will determine if you engage in “substantial gainful activity” (SGA). While this means that you have a maximum income of $1,130 (during 2016 unless you are blind) if you are an employee, the process of calculating SGA is much more complicated if you own a business. For claimants who are self-employed, the SSA will apply “The Three Tests”:
- Your efforts furnish the business with significant services and generates $1,090 or greater per month;
- Your work is comparable to the work of individuals who are not disabled and engaged in an identical or similar business; or
- Your work provides $1.090 per month in service in terms of its impact on the business or that amount the business saves in paying another employee to perform the tasks.
The process of applying this test can be complicated by a number of factors. For example, the process of qualifying might be slightly easier if you have been receiving SSDI benefits for more than two years prior to applying for SSI benefits. Similarly, certain expenses for the business that you do not actually pay will be deducted to provide a more accurate estimate of the value of your contribution to the business. Overall, we highly recommend that you speak with one of our qualified Pennsylvania Social Security Disability attorneys to learn more about your potential rights in this regard.
If you suffer from a disability and you are unemployed, we can evaluate whether you qualify for SSDI or SSI benefits. Our experienced Pennsylvania Social Security disability attorneys at the law firm of Krasno Krasno & Onwudinjo work with our clients so we can help them navigate the claims process. We invite you to call us toll free at 877-299-0779 to learn how we can help.