There are some important things about Social Security that an accountant might not be telling you.
And it's important to know them, because it could mean the difference between a quick, easy move into retirement and a more troublesome transition.
Here are some things you may not know.
Net, not gross.
For people who are self employed, we count your net income, not your gross income, when figuring your credits of coverage and the amount of your future Social Security benefits.
In 2007, you earn one credit for each $1,000 of net income you earn, up to four annual credits. Net earnings for Social Security are your gross earnings from your trade or business, minus your allowable business deductions and depreciation.
We also use your net income when figuring your benefit amount so a higher net income results in a higher benefit.
Credit where credit is due.
If you and your spouse own and operate a business together and expect to share in the profits and losses, you may both be entitled to receive Social Security credits, even if there is no formal partnership agreement.
For each of you to receive credit for your share of the business income, you must file separate self-employment returns (Schedule SEs), even if you file a joint income tax return.
If you don't file separate Schedule SEs, all the earnings from the business will be reported under only one person's Social Security number. In that case, only one of you will receive Social Security credits and the valuable protection they provide.
Household workers are covered.
If you are a household worker, your wages are covered under Social Security as long as you earn $1,500 or more in a calendar year (including cash for transportation expenses) unless you were under age 18 during any part of the year and household work is not your main job. Household workers include babysitters, maids, cooks, laundry workers, butlers, gardeners, chauffeurs, people who do housecleaning or repair work or anyone employed in or around someone else's home.
Don't forget to report.
If you pay a household worker $1,500 or more in cash wages during 2007, you need to deduct Social Security and Medicare taxes and report the wages once a year when you file your tax return. This includes reporting any cash you pay to cover the cost of the employee's transportation, meals or housing.
If you do not report the wages on time, you may have to pay a penalty in addition to the overdue taxes.
Want to learn more?
Just visit our Web site at www.socialsecurity.gov to learn all about Social Security.
For specific questions about taxes, visit the Internal Revenue Service at www.irs.gov.
For specific information about self-employment and household workers go to our publications page at www.socialsecurity.gov/pubs and look for the publications "If You Are Self-Employed" and "Household Workers."
You can also call us at 1-800-772-1213 or locally here in Kingsport at (423) 247-9820.