Paying into SS

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Nickinsticks
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Paying into SS

Post by Nickinsticks »

I have a friend who is a lifelong farmer who never paid into Social Security. He is financially well off with property, o/g rights (unearned income), wife's pension and SS, and 1M+ in investments, but he told me he was now paying into Social Security. His accountant had made him a voluntary payment to obtain 1 quarter, he refers to the 1 quarter needed to qualify for benefits approximately $1,500. I don't see the benefit, do you get a rate of return or compounding effect? Does it guarantee you a defined benefit exceeding deposit? I couldn't find anything online for this example as google keeps showing results for delaying payments, not deposits.
LittleMaggieMae
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Re: Paying into SS

Post by LittleMaggieMae »

Isn't it 40 quarters needed for people born after 1928 to get any sort of benefit?? And isn't the minimum earned in that quarter $1500 (maybe it's $1600.00 not sure). 40 quarters is 10 years of employment.

ADDED: maybe it has something to do with Self Employment taxes?? Isn't a Farmer "self employed"?

I think there's info missing from the OP's description of what was done and what it was suppose to accomplish.
prd1982
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Re: Paying into SS

Post by prd1982 »

Doesn’t he get spousal benefit Social Security automatically?
Katietsu
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Re: Paying into SS

Post by Katietsu »

You earn one quarter credit for about $1500 of self employment/farm income. I am guessing he decided to show a profit from his farming efforts in the minimum amount necessary to earn SS credits. Honestly, I would just leave it alone.
sycamore
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Re: Paying into SS

Post by sycamore »

The SSA has decent documentation about what's required.

https://www.ssa.gov/benefits/retirement ... edits.html. Note that SS provides for different kinds of benefits. It's not just retirement benefits but also disability and survivor benefits. Here are some key points about retirement benefits:
You must earn at least 40 Social Security credits to qualify for Social Security benefits. You earn credits when you work and pay Social Security taxes.

The number of credits does not affect the amount of benefits you receive. We use the amount of credits you’ve earned to determine your eligibility for retirement or disability benefits, as well as your family’s eligibility for survivors benefits when you die.

We cannot pay benefits to you if you don’t have enough credits.
...

Since 1978, you earn up to a maximum of four credits per year.
...
The amount of earnings it takes to earn a credit may change each year. In 2022, you earn one Social Security or Medicare credit for every $1,510 in covered earnings each year. You must earn $6,040 to get the maximum four credits for the year.
...
If you were born after 1928, you need 40 credits to qualify for retirement.
The amount of benefits you get is a complicated formula. Best to use a calculator.

Regarding the OP's friend's situation, it sounds like getting 40 quarters of credits is not worth the time & effort of earning income over 40 quarters of time (you can't just volunteer to send in a payment or have dividend income).
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22twain
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Re: Paying into SS

Post by 22twain »

Nickinsticks wrote: Wed Jan 19, 2022 2:20 pm I have a friend who is a lifelong farmer who never paid into Social Security.
As far as I can tell from a Google search for "farmers and social security", self-employed farmers are supposed to pay self-employment tax of 15.3% on their profits (the employer and employee contributions to SS, plus Medicare). Farmers who work for someone else are supposed to have the usual SS and Medicare taxes withheld from their pay, with the employer also paying the employer part.

How did he not fall under either of these situations?
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Topic Author
Nickinsticks
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Re: Paying into SS

Post by Nickinsticks »

22twain wrote: Wed Jan 19, 2022 11:32 pm
Nickinsticks wrote: Wed Jan 19, 2022 2:20 pm I have a friend who is a lifelong farmer who never paid into Social Security.
As far as I can tell from a Google search for "farmers and social security", self-employed farmers are supposed to pay self-employment tax of 15.3% on their profits (the employer and employee contributions to SS, plus Medicare). Farmers who work for someone else are supposed to have the usual SS and Medicare taxes withheld from their pay, with the employer also paying the employer part.

How did he not fall under either of these situations?
Typically Schedule F filers who sole income is the Schedule F do not have income. Cash flow may be positive in years, but they have enough in depreciation to offset positive cash flow. I live in the Marcellus shale, so it's not unheard of for a farmer to have lease/right of way bonuses (1 million +) one year and the following year be applying for EITC with spouse w-2 income the next year.

Interestingly, I don't see anything posted that makes this seem like a logical worthwhile scenario. I just know with Farmers, Railroad workers, and clergy/ministers they have some very unique rules.
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grabiner
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Re: Paying into SS

Post by grabiner »

Nickinsticks wrote: Thu Jan 20, 2022 10:16 am
22twain wrote: Wed Jan 19, 2022 11:32 pm
Nickinsticks wrote: Wed Jan 19, 2022 2:20 pm I have a friend who is a lifelong farmer who never paid into Social Security.
As far as I can tell from a Google search for "farmers and social security", self-employed farmers are supposed to pay self-employment tax of 15.3% on their profits (the employer and employee contributions to SS, plus Medicare). Farmers who work for someone else are supposed to have the usual SS and Medicare taxes withheld from their pay, with the employer also paying the employer part.

How did he not fall under either of these situations?
Typically Schedule F filers who sole income is the Schedule F do not have income. Cash flow may be positive in years, but they have enough in depreciation to offset positive cash flow. I live in the Marcellus shale, so it's not unheard of for a farmer to have lease/right of way bonuses (1 million +) one year and the following year be applying for EITC with spouse w-2 income the next year.
And Schedule SE has an optional method which farmers can use to compute their income differently, so that they get their SS and Medicare credits.
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phxjcc
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Re: Paying into SS

Post by phxjcc »

40 * 1500 = 60,000

Minimum FRA SS = 897/month, CALL IT 900.
So that is 10,800 for 17 years.

Not a bad ROI.

Or are you saying he is reporting 1500 I COME per quarter ?

Then, that is a great ROI.
Carl53
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Re: Paying into SS

Post by Carl53 »

phxjcc wrote: Sat Jan 22, 2022 1:27 am 40 * 1500 = 60,000

Minimum FRA SS = 897/month, CALL IT 900.
So that is 10,800 for 17 years.

Not a bad ROI.

Or are you saying he is reporting 1500 I COME per quarter ?

Then, that is a great ROI.
That is a great ROI but the poster mentioned that his spouse collects SS. So it appears that the farmer is of retirement age and may still need a number of years of SE taxes to be qualified to collect SS on his work history. Meanwhile he can collect a spousal benefit. Even if his wife has only the minimum SS benefit, he could collect up to 1/2 of her PIA and use her work history to be eligible for medicare. If this is the case the ROI will be less since he would only get an increase from what he could get as a spouse to the minimum noted above. If she had a mid-range pay history there may be no additional benefit.
ModifiedDuration
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Re: Paying into SS

Post by ModifiedDuration »

phxjcc wrote: Sat Jan 22, 2022 1:27 am 40 * 1500 = 60,000

Minimum FRA SS = 897/month, CALL IT 900.
So that is 10,800 for 17 years.

Not a bad ROI.

Or are you saying he is reporting 1500 I COME per quarter ?

Then, that is a great ROI.
That is not the way it works. Someone earning $1,500 a quarter would not qualify for the Special Minimum Benefit, which has a maximum of $951 a month for 2022.

An individual would need to earn at least $16,380 in 2022 to qualify for one year of service under the Special Minimum Benefit calculation and an individual would need at least 30 years of credited service under the Special Minimum Benefit calculation to get the 2022 $951 monthly benefit.

The whole boring story is that the Special Minimum Benefit is a separate calculation to provide a minimum benefit for individuals who were low income earners over their working life.

In order to qualify for the Special Minimum Benefit of $951 a month (the maximum benefit under the calculation in 2022) an individual would need at least 30 years of a certain minimum annual social security earnings, which is adjusted annually (in 2022, that amount is $16,380).

A person who has these minimum annual earnings for 11 years (the minimum needed for Special Minimum Benefits) would qualify for a Special Minimum Benefit of $45.50 a month.

Someone who is earning less than $16,380 in 2022 would not qualify for a year of service for the Special Minimum Benefit calculation.

Of the more than 60 million people collecting social security benefits, only about 30,000 are collecting under the Special Minimum Benefits calculation (and that number has been shrinking every year).

https://www.ssa.gov/cgi-bin/smt.cgi
phxjcc
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Re: Paying into SS

Post by phxjcc »

ModifiedDuration wrote: Sat Jan 22, 2022 6:18 am
phxjcc wrote: Sat Jan 22, 2022 1:27 am 40 * 1500 = 60,000

Minimum FRA SS = 897/month, CALL IT 900.
So that is 10,800 for 17 years.

Not a bad ROI.

Or are you saying he is reporting 1500 I COME per quarter ?

Then, that is a great ROI.
That is not the way it works. Someone earning $1,500 a quarter would not qualify for the Special Minimum Benefit, which has a maximum of $951 a month for 2022.

An individual would need to earn at least $16,380 in 2022 to qualify for one year of service under the Special Minimum Benefit calculation and an individual would need at least 30 years of credited service under the Special Minimum Benefit calculation to get the 2022 $951 monthly benefit.

The whole boring story is that the Special Minimum Benefit is a separate calculation to provide a minimum benefit for individuals who were low income earners over their working life.

In order to qualify for the Special Minimum Benefit of $951 a month (the maximum benefit under the calculation in 2022) an individual would need at least 30 years of a certain minimum annual social security earnings, which is adjusted annually (in 2022, that amount is $16,380).

A person who has these minimum annual earnings for 11 years (the minimum needed for Special Minimum Benefits) would qualify for a Special Minimum Benefit of $45.50 a month.

Someone who is earning less than $16,380 in 2022 would not qualify for a year of service for the Special Minimum Benefit calculation.

Of the more than 60 million people collecting social security benefits, only about 30,000 are collecting under the Special Minimum Benefits calculation (and that number has been shrinking every year).

https://www.ssa.gov/cgi-bin/smt.cgi
Thanks for the clarification.
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Nickinsticks
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Re: Paying into SS

Post by Nickinsticks »

Hello everyone, further information... he paid in $1,500 last year in the last quarter. Total for 2021 was $1,500. His accountant recommended the $1,500 pay in per quarter. for 2022 He likely won't have taxable income from farming in any of these quarters or in the future. He is legitimately paying in by check; he's a sole prop with no payroll from farming. His current age is 55. SS gave him estimates of $662 per month if taken at 62, $959 at 67, and $1203 at 70. These numbers are coming from an estimate he received directly from SS. What I can't understand is he is saying he has never paid into SS, but those $ amounts appear to be assuming he has 40 quarters paid in. His wife is a 30 year+ schoolteacher with a salary of approximately $90k. Assuming he continues to pay the $1,500 per quarter, I calculated for age 62 payments in of $50,230 and benefits paid of 177k; age 67 65k in 183k out, age 70 75k in 175k out with an assumption of 80 at death. Certainly the potential spousal benefits there, but when I do this math, it doesn't seem like the government should be giving this away.
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neurosphere
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Re: Paying into SS

Post by neurosphere »

I'm confused and perhaps I missed something. One can make VOLUNTARY payments to SS in order to obtain a benefit they are not eligible for through employment?

First off, I didn't realize one could actually donate (as in a gift) to the SS system: https://www.ssa.gov/agency/donations.ht ... ave%20died. I guess it's similar to how one can donate to the US Treasury.

But secondly, the SS website has this comment "It is not possible to pay Social Security taxes voluntarily on work that is not covered for Social Security under the terms of the Social Security Act and the Internal Revenue Code."

So when you say his accountant "recommended" he pay, pay what? How? If perhaps he has a way to give himself compensation from some source, he does't need to "pay" $1500. He needs to EARN ~$1500 a quarter or $6000/year. He'll then pay self-employment taxes of $6000 * 15.3% = $918. So not sure what the OP means by "he paid in $1500" in the last quarter and by "he is legitimately paying in by check". Paying what? Estimated taxes on the income he is giving to himself? This has to be the case and that the OP is misunderstanding the details. He is simply making his estimated payments on 1500 per quarter of income, but not an actual payment of $1500 (well, there might be an actual payment of $1500/quarter to himself in some way but not "so social security").

As sycamore already wrote (didn't see it earlier, sorry) "you can't just volunteer to send in a payment or have dividend income". And as kaietsu wrote "I am guessing he decided to show a profit from his farming efforts in the minimum amount necessary to earn SS credits". That probably true.
If you have to ask "Is a Target Date fund right for me?", the answer is "Yes" (even in taxable accounts).
binkding
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Re: Paying into SS

Post by binkding »

Does he have 39 QC (quarters of coverage) already? If so, then certainly working to get 1 more QC is worth it.
calwatch
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Re: Paying into SS

Post by calwatch »

There is the optional method. It is based on gross income not net income. Many farmers don't have net income after interest, depreciation, or amortization. They can use it indefinitely. For self employed people they can use it five times. For example, one might be a handyman and make a certain amount of money, but it becomes much less when travel expenses are considered.
https://www.ssa.gov/pubs/EN-05-10022.pdf


Optional method
If your actual net earnings are less than $400, your
earnings can still count for Social Security under
an optional method of reporting. You can use the
optional method when you have income from farming,
non-farm income, or a combination from both. You
can use the optional method only five times in your life
when reporting non-farm income. There is no limit on
using the optional method of reporting farm income.
Here is how it works:
• If your gross income from farm self-employment
was not more than $8,820 or your net farm
profits were less than $6,367, you may report the
smaller of two-thirds (2/3) of gross farm income
(not less than 0) or $5,880.
• If your net income from non-farm self-employment
is less than $6,367 and also less than 72.189%
of your gross non-farm income, and you had net
earnings from self-employment of at least $400 in
two of the prior three years.
• You can use both the farm and non-farm methods
of reporting, and can report less than your total
actual net earnings from farm and non-farm
self-employment. However, you can’t report less
than your actual net earnings from non-farm self
employment alone. If you use both methods to figure
net earnings, you can’t report more than $5,880.
NOTE: If you’re a farmer, you can use the optional
reporting method every year. Having actual net
earnings of at least $400 in a preceding year isn’t
necessary. Also, other gross farm, net farm, and
non-farm profit amounts may change each year.
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neurosphere
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Re: Paying into SS

Post by neurosphere »

calwatch wrote: Wed Jan 26, 2022 12:27 am There is the optional method. It is based on gross income not net income. Many farmers don't have net income after interest, depreciation, or amortization. They can use it indefinitely. For self employed people they can use it five times. For example, one might be a handyman and make a certain amount of money, but it becomes much less when travel expenses are considered.
https://www.ssa.gov/pubs/EN-05-10022.pdf
This makes sense, that there is more than one way for a farmer and some others to calculate/report income for the purposes of covered earnings. However, based on the text you quoted, it doesn't seem that one can simply choose the amount to report, e.g. such that one can simply dial-in a set income? "...you may report the smaller of two-thirds (2/3) of gross farm income (not less than 0) or $5,880"
If you have to ask "Is a Target Date fund right for me?", the answer is "Yes" (even in taxable accounts).
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