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The link between self-employment tax and federal taxes

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A caller to the AgingOptions Radio show asked Rajiv why he didn’t get credit for his Social Security taxes when he paid them.  For those people like the caller who are self-employed, they pay both the employer’s and the employee’s part of the Social Security tax or as it is known Self-Employment Tax.  

Self-Employment Tax consists of Social Security and Medicare taxes.  The caller had a question about his federal income tax so he filed for an extension on that part of it but went ahead and paid on the Self-Employment Tax part of his tax burden.  Here’s the problem:  Somewhere along the way, the link between his federal taxes and his Self-Employment taxes was broken.  When the IRS determines that you haven’t paid your taxes, no Self-Employment tax is reported to the Social Security Administration and as the caller mentioned those years he didn’t receive credit for come up as zeros when Social Security determines the amount of his benefit.

Here’s what Andy Landis, author of “Social Security: The Inside Story” had to say in essence about the caller’s situation: The notice from Social Security was to notify him that the Social Security Administration had no evidence that he paid Self-Employment taxes for the years he is missing.  They (meaning Social Security) gave him 60 days to appeal.  The caller needs to appeal even if he needs time to find the evidence Social Security needs to prove his claim.   When he files the appeal, Social Security will notify him what they will need for evidence.

The caller asked if he could get a refund if Social Security does not give him credit for the payment and Landis wrote that the amount he paid is a tax just like any other tax whether or not it gets used in his Social Security computation so the short answer is no.

Of course, Landis cannot say what Social Security will decide in the caller’s case as he doesn’t represent Social Security or work for the agency.  Here’s where Landis found some of the information he used for the caller.

Our thanks to Landis for helping clear the murky waters of Social Security taxes.

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