The self-employed -- people who own their own businesses or do freelance work -- are usually eligible for Social Security disability benefits. While people who work for companies as employees pay taxes to the Social Security Administration (SSA) through their paychecks, the self-employed pay taxes to the SSA as part of estimated taxes or with their tax return. Self-employed people can qualify for disability benefits as long as they have worked enough years to qualify and have worked and paid self-employment taxes recently (for more information, see our series of articles on SSD eligibility).
Some business owners aren't required to pay the self-employment tax. For instance, owners of S corporations don't pay the self-employment tax on company profits. These individuals won't be able to collect Social Security benefits unless they pay taxes to Social Security through other jobs.
Having enough "work credits" allows you to qualify for Social Security benefits like SSD, survivor benefits, and retirement benefits. The number of credits you need to earn to qualify for SSD depends on how old you are when you become disabled. However, anyone who earns 40 credits in ten years has met the work credit requirement to receive full benefits.
How do you earn credits? You earn one work credit for each $1,260 you earn in a year (that you pay Social Security taxes on), but the most credits you can earn in a year are four. It doesn't matter when during the year you made the money. For example, if you are self-employed and report a net profit of at least $5,040 in income for the year, you will earn four work credits—the maximum anyone can earn.
Your disability amount is based on your reported earnings (from either self-employment or from work as an employee), not on your work credits. Work credits simply allow you to qualify for benefits. They do not determine the amount of those benefits.
Your actual benefits amounts are computed based on what the SSA calls your “average indexed monthly earnings” (AIME). Your AIME is calculated using a highly complex formula that takes into account factors such as:
If you want to learn more about how your benefits are calculated, see our article on how much you can get in SSD benefits.
If you are self-employed, you likely file a Schedule SE at tax time. To be eligible for Social Security benefits, you have to pay the self-employment tax, which consists of Social Security and Medicaid taxes. The self-employment tax rate was 15.3%. Part of this, 12.4%, goes to Social Security, and the remainder to Medicaid. You can learn more about the self-employment tax at the IRS website.