Paying Social Security tax
Every worker pays some Social Security tax, but for most people, the 12.4% tax is split evenly between employee and employer. The same goes with the 2.9% Medicare tax. But when you're self-employed, you're both employee and employer, so you have to pay the full amount. Because you don't have regular paychecks the government can withhold money from, you need to set aside this money on your own in a savings account and pay it as part of your quarterly estimated taxes.
The good news is, you get to write off half of what you pay in Social Security and Medicare taxes, which reduces the amount of income tax you owe. So if you earned $50,000 this year and 15.3%, or $7,650, was for Social Security and Medicare, you could write off half of this -- $3,825 -- so you'd only pay income tax on the remaining $46,175. You could reduce this amount further with additional deductions and possibly move yourself into a lower income tax bracket.
Qualifying for Social Security
Social Security qualification requirements are the same for self-employed and traditional workers. You must earn 40 credits. You receive one credit for every $1,360 you earn in 2019 with a maximum of four credits per year. This means you must work 10 years in order to qualify, though these 10 years do not have to be consecutive. The dollar amount required to earn one credit may change from year to year.
