Work Credit

[RoopamK253234]

I am filing my 2021 taxes. I have income from small jobs close to ~12k and as a result I pay ~1400 in taxes. However with earned income tax credit, I get $6 refund instead. I am happy about it but issue si that I am trying to earn work credits. I have less than 40 so far and in order to get full SS benefits I need 40

So my question is, with no tax being paid due to to earned income tax credit, do I still earn 4 work credits for this year?

[RoopamK253234]

Thank you for your replies. I do odd baby sitting jobs and at end of year I file tax. I don’t get any W2 or self employment form. I have been paying my taxes only when I file return. Typically I will earn enough to get 4 credits and pay social security tax

my concern is that this year my tax paid is 0 even though I have similar income. It’s because earned income credit made up for tax I was supposed to pay. Does it mean I paid no social security tax and I will not get any credits. Thanks in advance your replies 

[GailL1]

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@RoopamK253234 wrote:

I do odd baby sitting jobs and at end of year I file tax. I don’t get any W2 or self employment form. I have been paying my taxes only when I file return. Typically I will earn enough to get 4 credits and pay social security tax

my concern is that this year my tax paid is 0 even though I have similar income. It’s because earned income credit made up for tax I was supposed to pay. Does it mean I paid no social security tax and I will not get any credits. Thanks in advance your replies 

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IRS.gov -  Self-Employed Individual Tax

As a self-employed individual, generally you are required to file an annual return and pay estimated tax quarterly.

Self-employed individuals generally must pay self-employment tax (SE tax) as well as income tax. SE tax is a Social Security and Medicare tax primarily for individuals who work for themselves. It is similar to the Social Security and Medicare taxes withheld from the pay of most wage earners. In general, anytime the wording "self-employment tax" is used, it only refers to Social Security and Medicare taxes and not any other tax (like income tax).

You have to file an income tax return if your net earnings from self-employment were $400 or more. If your net earnings from self-employment were less than $400, you still have to file an income tax return if you meet any other filing requirement listed in the Form 1040 and 1040-SR instructions 

Just make sure you are filing your taxes correctly - Let's say that you had self-employed income from baby-sitting in the amount of $ 12,000.  You do your taxes correctly and this income from self-employment (Schedule C and Schedule SE) will determine the amount of Self-employment taxes you have to pay.  Self-employment taxes are a self-employed person's Social Security and Medicare taxes. 

Your net income from Sch. C is your income from the business and your income tax and any credits are applied to that figure as you work through the 1040.  This may be nothing or something based on the INCOME TAX RETURN.  Whatever figure that turns out to be - zero, a credit or an amount owned - is then applied to the amount that you owe from Schedule SE (your self-employment tax).  SE tax is about 15% of your self employment income from Sch C.

Get help in the prep of your taxes.   

[GailL1]

How are you showing the income you earned from the babysitting on your tax return?  

In other words, what line on the 1040 or equivalent are your reporting this income?

You should be able to claim the income as Self employment and then complete SCHEDULE SE and pay your Social Security and Medicare taxes.

I will tell you for self employment income one pays both the employee and employer match - so it is about 15% of what you actually earned (before any income tax deductions) - you said you earned about $ 12,000 so the SS & Medicare self employment tax is gonna be in the area of $ 1800 and you have to pay this unless the rest of your return creates an offset with a tax credit.

It sounds like you need some tax prep help - AARP has a free one in some places - 

Here is the location link for where they are:

AARP Foundation Tax Aide Program

Here is the IRS Instructions for 2021 Schedule SE -

don't let this overwhelm you - the tax folks will know how - but you should read the who should use this form part - who pays SE taxes.

This is the actual IRS 2021 Schedule SE

If you do not pay FICA taxes for SS and Medicare on your earned income - you get no benefit - No work credit.  Based on the amount you made babysitting - you should do the Schedule SE and declare the income as self employed if not you are not doing your taxes correctly. 

[GailL1]

Your work credits come from the amount on your W-2 (employee) or 1040 Schedule SE (Self employed) - it is based on the earned income amount on which you paid payroll taxes (W-2) or Self employment taxes. 

Work credits have nothing to do with your actual income tax return.

Different taxes altogether -

• FICA /  payroll taxes / Self Employment (SE taxes) go to the SS Trust Fund
• Income taxes go to the government - state or federal 

If you didn't pay payroll taxes on your earned income (W-2, Schedule SE (self employed income) - you get NO work credits.

BTW, 40 only gets you vested in the program - to earn a decent benefit you gotta work close to 35 years; course there is a minimum benefit.   The better the salary average thru the years, the higher the benefit for SS retirement.

[JohnW486908]

What is that minimum benefit?  My husband will have 40 credits and 11 years with his part time job.  His full time job is a teacher with no ss paid, he has a pension.  Trying to figure out what his ss benefit may be.

Thanks!

[fffred]

@RoopamK253234 

"You can earn up to four credits each year and each credit represents
a certain amount of earnings. In 2022, the amount needed to earn
one credit is $1,510 . You can work all year to earn four credits, or you
can earn enough for all four in a much shorter length of time. If you
earn four credits a year, then you will earn 40 credits after 10 years
of work."

This is taken from the SSA site https://www.ssa.gov/myaccount/assets/materials/eligibility-for-benefits.pdf

Your income tax situation is a separate issue from your SS eligibility. As indicated above, as long as you earn the $1,510 in a year...and it's reported to the SSA...you will get the "one work credit". And you can get more credits (up to 4) by earning more money in the year (and paying into the SS system).

Be sure to read that article from the SSA. And to double check my work.