I recently received an email from a reader asking:
How does now being self employed and not paying SS benefits, how does or will this affect my ss retirement benefits?Signed, Concerned Self Employed
My response was:
Hi. If you are making an income from self employment then you will normally pay self employment tax which covers the social security tax. The self employment tax is taken out when you file your IRS income taxes.
It is covered at the Social Security web site at this page:
The base tax is 15.3% up to $106,800 and then you pay the medicare portion of 2.9% on anything above that.
If you've never been self employed then you may not be familiar with self employment tax. Self employment tax is basically how they collect social security and medicare tax for people who are self employed. However since you are both the employee and employer in this case you pay both halves of the tax. Normally when you work for a company as an employee you pay half the tax and the company pays the other half. More information on the self employment tax is available at the IRS site.