Social Security

Yes. A portion of your self employment tax goes on your record towards social security. 

Hello ssouss, and thanks for your question!

You asked, if making quarterly estimated payments will allow you to collect Social Security when you retire.

Making quarterly estimated tax payments will not directly impact your eligibility to receive Social Security benefits when you retire. Eligibility for Social Security is based on the number of years worked and the amount of money earned through those years. However, if you're self-employed and make quarterly estimated tax payments, it can increase your income which will result in higher Social Security benefits in the future.

Generally speaking when you pay quarterly estimated taxes, you are paying towards your income tax liability for the current year. If you underpay your estimated taxes or fail to pay them, you may be subject to penalties and interest from the IRS. However, if you pay the required estimated tax amounts, it will help you avoid underpayment penalties and the accumulation of interest on any unpaid taxes.

By staying up-to-date with your estimated tax payments, you can ensure that you have paid enough taxes each year to meet your tax obligations and avoid owing any additional taxes or penalties at the end of the year. Consequently, this will provide you additional benefits in the future, including potentially higher Social Security benefits.

According to the Social Security Administration, in determining your eligibility for traditional Social Security retirement benefits, you must have earned at least 40 Social Security credits. Social Security credits are earned by paying Social Security taxes, with workers being able to earn up to four credits per year starting in 1978. The number of credits earned is based on your annual wages and self-employment income.

In 2023, you must earn at least $6,560 in earnings to receive the maximum of four credits for that year. This is determined by earning one credit for every $1,640 in covered earnings. The amount required to earn one credit changes annually and was lower,  prior to 2023.

For more information on this topic please check out the links below:

A Guide to Social Security Benefits 

Understanding the Benefits 

Special Social Security Rules 

Please feel free to reach backout with any additional questions or concerns you might have!

Have an amazing rest of your day!

Terri Lynn, EA

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