There are many benefits to being self-employed, such as the ability to set your own schedule, being your own boss, and the potential to reap financial rewards for your hard work and innovation. However, working for yourself can also be risky. In many cases, the entire business model rests on your shoulders — which may mean that if you are sick or become disabled, your financial stability is in jeopardy.
If you work for an employer, then you are relatively secure in knowing that you will be covered if you become sick or disabled. Paid time off, vacation days and even disability benefits can help in the event of a medical emergency. In addition, each paycheck that you receive shows that you and your employer are both paying into the Social Security system — making you eligible for disability benefits.
When you are self-employed, your safety net may not be as strong, but it still exists. Not only are you likely eligible for Social Security benefits, but you can also purchase your own long-term disability policy to increase your peace of mind. Read on to learn more from a Cherry Hill disability benefits attorney.
Do Self-Employed People Qualify for Social Security Disability Benefits?
If you are self-employed, you can potentially qualify for either Supplemental Security Income (SSI) benefits or Social Security Disability Insurance (SSDI) benefits. To be eligible for either type of benefit, you will need to qualify as disabled under the Social Security Administration (SSA)’s definition.
For purposes of SSA disability benefits, a person is disabled if they cannot do the work that they did before, they cannot adjust to other work because of their medical condition(s), and their disability has lasted or is expected to last 12 months or longer, or to result in death. In other words, if you cannot work because of a disability, and that disability is either long-term or terminal, then you may be considered disabled by the SSA.
SSI is a need-based program. As a result, if you qualify based on a disability, because you are blind, or because you are aged 65 or older, and have limited income and assets, then you will receive benefits through SSI. Your work history is not relevant for the purposes of evaluating eligibility for SSI benefits.
In contrast, you must have paid into the system to qualify for SSDI benefits. A person must have worked a job covered by Social Security to be eligible for SSDI benefits. This means that as a self-employed person, you may have paid enough into the Social Security system in order to receive benefits.
The SSA determines eligibility based on work credits. One work credit is earned for each $1,360 in covered earnings each year. To obtain the maximum 4 credits, you must have earned $5,440 in a year (and paid the applicable Social Security taxes on this amount).
A person must have accumulated at least 40 credits to receive SSDI benefits. 20 of these credits must have been earned in the last 10 years before you became disabled. If you are not entitled to SSDI based on your own work record, you may still be able to qualify based on the work record of a spouse.
There are some exceptions to the number of credits earned based on your age. For example, if you are under age 24, you only need to have earned 6 credits in the 3 year period prior to your disability starting to qualify for SSDI. If you are between the ages of 31 and 42, you will need 20 credits.
A self-employed person who earns at least $5,440 per year and who pays taxes on their income will receive Social Security credits. Individuals who are self-employed pay a “self-employment tax,” which includes Social Security and Medicare taxes. For 2019, the tax rate for the self-employment tax was 15.3% (12.4% for Social Security and 2.9% for Medicare). In 2019, only the first $132,900 of income was subject to both Social Security and Medicare taxes; after that amount, income was only subject to Medicare taxes (for purposes of the self-employment tax).
As long as you have the minimum number of credits that you need based on your age, you will be eligible for SSDI benefits based on work credits as a self-employed person. After passing that initial hurdle, the SSA will proceed to analyze your application to determine if you are considered disabled in a five-step sequential evaluation process.
If you are self-employed, you can potentially qualify for SSDI benefits based on the number of credits that you have earned. The number of benefits that you will receive will depend on your earnings from self-employment, plus any income from regular employment. The higher your income, the more that you will likely receive in monthly benefits.
Purchasing Long-Term Disability Insurance When You Are Self-Employed
Most people with long-term disability (LTD) insurance policies have access to them through a group insurance plan. This is not an option for anyone who is self-employed, yet LTD benefits are even more important when you work for yourself. For most self-employed individuals, if you aren’t working, you aren’t getting paid — which makes LTD benefits even more valuable.
LTD insurance policies provide a monthly payment, typically between 50 and 60% of your salary when you are unable to work due to a disability. There is a waiting policy to apply for LTD benefits, which is usually 90 to 180 days after you become disabled. If you are approved, then you will receive benefits in accordance with your policy, which may be for 24 months until you are no longer disabled, or until you reach retirement age.
If you are self-employed, you will need to determine how much LTD coverage you will need to replace your income if you cannot work. This will require looking at your tax statements, monthly receipts, or other forms of income. You should also examine your monthly expenses to ensure that you purchase enough coverage to meet your costs.
LTD insurance can be purchased through an insurance agent or broker. You will generally need to prove that you do not have a pre-existing condition and that you have been earning income as a self-employed individual for two years. This can be demonstrated through tax returns, contacts, and other financial documents.
If you do become disabled as a self-employed person, having a LTD policy in place can be incredibly important in protecting your financial health. A skilled New Jersey disability lawyer can work with you to help you apply for long-term benefits.
Talk with an Experienced Disability Benefits Attorney
Being self-employed doesn’t mean that you are out of luck if you become disabled. You may be eligible for one or both types of Social Security disability benefits, depending on your income and work history. In addition, if you have purchased a LTD policy, you may also receive monthly payments from your insurance company.
Bross & Frankel represents clients throughout New Jersey and Pennsylvania who are unable to work due to a disability. We are experienced, compassionate, and knowledgeable. Contact our office today at 856-795-8800 or online to schedule a free disability claim review with a disability attorney.
- The Difference between “Own Occupation” and “Any Occupation” in Long-Term Disability Insurance Policies
- How to Appeal if your Long Term Disability Benefits are Denied or Terminated?
Rich Frankel is the managing partner of Bross & Frankel. He is a member of the New Jersey and Pennsylvania bars. He has focused exclusively on disability and social security benefits since 2005.
Mr. Frankel joined what is now Bross & Frankel after having watched his father struggle with disability, fighting a lengthy illness. Mr. Frankel founded the firm’s veteran’s law practice and substantially grew the social security disability practice, focusing Bross & Frankel’s ability to fight for all of the disability benefits available to his clients.
Mr. Frankel additionally fights for clients in court, obtaining frequent victories in Social Security appeals and against insurance companies in Federal court.