Business ownership can be extremely rewarding, but it does not come without its stressors. In addition to the typical stressors that come with managing job responsibilities while juggling those of a business owner, you must also worry about the what-ifs. One of the biggest what-ifs is, what if you sustain an injury that renders you unable to work?
Employed people have access to several relief options in the face of an injury, including workers’ compensation and Social Security disability insurance. Though your relief options will vary depending on what type of coverage you pay into, you should qualify for SSDI. AllLaw explains the basics of SSDI and how and when you may qualify.
Paying into self-employment tax
To qualify for SSDI, you must contribute to Social Security and Medicare taxes. These are expenses you pay when you pay your employment tax, so as long as you are up-to-date on your taxes, you should qualify for both. The self-employment tax rate, as of 2020, is 15.3%. Of that percentage, 12.4% goes toward Social Security. Once your self-employment income exceeds $142,800, your self-employment tax only goes toward Medicare, which means your self-employment tax rate drops to 2.9%.
How to earn Social Security disability credits as a self-employed person
As a self-employed person, you earn SSDI in the same way you would as an employee, which is by earning one credit for every four months in which you earn at least $1,470. You can only earn four credits per year. To earn all four credits, you must make at least $5,880 before taxes.
As an employee, you can only earn one credit per quarter, regardless of how much you earn every four months. However, as a business owner, you can qualify for the annual four credits regardless of when throughout the year you earn the $5,880.
How many credits do you need to qualify for benefits
The number of credits you need to qualify for SSDI depends on how many years you have paid into the Social Security system. However, so long as you earn 40 credits — which means you have paid into the system for at least 10 years — you are eligible for the maximum amount of benefits. If you sustain an illness or disability at a young age that renders you unable to work, you may qualify for the full amount of benefits with just six credits.
The maximum amount of benefits for which you qualify all depends on how much you claim on your tax returns on a year-over-year basis. The higher your average indexed monthly earnings, the more you will receive in benefits.
Though you may qualify for SSDI benefits, filing for and receiving them may prove difficult. You can improve your odds of receiving approval by seeking help with your application.