Ask Rusty – I was Self-Employed and Don’t Have Enough Credits for Social Security

Dear Rusty: For a thirty-year period, I was making a living as an independent contractor and freelancer. I was working on behalf of myself. Thus, I was only paying state and federal taxes when applied. Due to changes in the employment landscape, I wish to apply for benefits at age sixty-four, as receiving said SS benefits would serve as supplemental income to what I would be receiving from outside sources.

I recently discovered through the SSA that I do not have enough “points” to apply for Social Security benefits. What would be the method to obtain those required points in order to receive benefits? Signed: Needing Points 

Dear Needing: Social Security is an earned benefit, and eligibility is attained by contributing to SS through FICA payroll taxes, or Self-Employment (SECA) tax on your net earnings from self-employment, over your lifetime. You must have at least 40 “quarters of credit” to be eligible for Social Security benefits – essentially you must work one quarter of each year earning at least a specified amount during that quarter to earn one credit, and you can earn a maximum of 4 credits for each year you work. The amount of earnings per credit varies each year, but for 2024, work earnings of $1,730 give you one credit (annual work earnings of $6,920 earn 4 credits). Usually, you must contribute to Social Security for about 10 years to be eligible for benefits. You must have earned at least 40 quarter credits to collect Social Security retirement benefits/ If you have less than 40 you are not eligible for SS retirement benefits. 

For self-employed individuals, SECA SS tax is paid when you file your federal income tax return – you pay into Social Security when filing your annual Self-Employment income tax return (the self-employed must pay both the employee and the employer portion of Social Security tax). If you did not file an income tax return for each year over your lifetime you were self-employed, you didn’t earn any SS credits for that year. You pay SECA tax on your NET earnings from self-employment (after all business expenses are deducted).

If you are just a few credits short of the 40 necessary to be eligible for benefits, you can still earn those extra credits needed by working and paying SS FICA or SECA taxes on your work earnings. For each $1,730 earned this year, you will earn one SS credit, up to a maximum of 4 per year. But you must contribute to Social Security from those earnings – if you work as a company employee you will have FICA taxes withheld from your earnings, and if you are still self-employed you would need to pay SECA taxes on net earnings over $6,920 when you file your self-employment income tax return. You would need to do that for as long as it takes for you to attain the minimum 40 quarter credits needed to be eligible for Social Security retirement benefits. (FYI: you cannot “buy” the extra points needed; you need to earn them by working and contributing to Social Security from your earnings).

One final point: whenever SS benefits are claimed before one’s full retirement age (FRA) Social Security’s “earnings test” applies. The earnings test limits how much you can earn from working before some of your SS benefits are taken away. The earnings test no longer applies after you reach your FRA and, if you turned 64 this year, your FRA is 67. Self-employed individuals are also subject to an hourly limit of 15 to 45 working hours per month in their first year of early retirement. 

This article is intended for information purposes only and does not represent legal or financial guidance.  Russell Gloor is the, National Social Security Advisor at the AMAC Foundation, the non-profit arm of the Association of Mature American Citizens. To submit a question, visit our website (amacfoundation.org/programs/social-security-advisory) or email us at [email protected].