Social Security Disability Benefits for Those Who are Self-Employed – How It Works

June 19, 2017

If you are self-employed — that is, you own your own business or you do freelance work – you may be eligible for Social Security Disability Insurance (SSDI) benefits, if — due to an injury or illness — you are no longer able to work.

To qualify for Social Security benefits – like those for disability, retirement, or for a surviving spouse – you need to have accumulated enough work credits. Here is how the Social Security Administration explains work credits on their website:

  • “We use your total yearly earnings to figure your Social Security credits. The amount needed for a credit [in 2017 is $1,300]. You can earn a maximum of four credits for any year. The amount needed to earn one credit increases automatically each year when average wages increase. You must earn a certain number of credits to qualify for Social Security benefits. The number of credits you need depends on your age when you apply and the type of benefit application. No one needs more than 40 credits for any Social Security benefit.”

People who work as employees of a business have Federal Insurance Contributions Act (FICA) deductions withheld from their paychecks, which are matched by their employer. FICA is composed of the old-age, survivors, and disability insurance taxes, also known as Social Security taxes; and the hospital insurance tax, also known as Medicare taxes. Included in these deductions is a payment for disability insurance, resulting in work credits.

Similar to the Social Security and Medicare taxes withheld from the pay of wage earners, most individuals who work for themselves pay a self-employment tax (SE tax), which results in work credits. But self-employed individuals must figure out the tax themselves, and they must make quarterly estimated tax payments for the SE tax and withholding for income tax. The current self-employment tax rate is 15.3%. Part of this, 12.4%, goes to Social Security, and the remainder to Medicare. (More information about the self-employment tax can be found on the Internal Revenue Service website.)

If you own your own business, but do not earn a profit and therefore don’t pay the SE tax, you may not qualify for SSDI benefits unless you have another business or job under which they have paid Social Security taxes. In addition, some business owners are not required to pay the self-employment tax. For example, an owner of an S corporation is not required to pay the SE tax on company profits. Because they do not pay the SE tax, they also may not be eligible for Social Security disability benefits unless they pay Social Security taxes on income from another business or a wage-earning job.

If you have a disability which prevents you from being able to work, if you have enough work credits, and if your disability has lasted or is expected to last at least 12 months, you may be eligible to receive SSDI benefits. You must fill out an application with the SSA either online or at a local SSA office and provide medical documentation of your condition(s) that prevents you from working. In addition to providing your medical records, typically you must sign a release form to allow the SSA to request any additional records they believe are necessary to review your claim.

If, through your self-employment, you have not earned enough work credits to qualify for SSDI, you may still qualify for disability payments through the Supplemental Security Income (SSI) program. Because SSI is a needs-based program, it is not dependent on your earnings record, but there are income and asset limits.

Before filing a claim for SSDI or SSI benefits, you should consider consulting a Chicago-area attorney who regularly handles Social Security benefits claims. A lawyer can increase your chances of receiving much-needed benefits. Call Nash Disability Law for a free consultation about whether you qualify for Social Security Disability benefits.