Q. Someone I know has not filed a tax return for more than 20 years because she does not have a regular job. She gets odd jobs – just enough to feed herself. But now she wants to start paying income tax so she can set up social security when she gets old. How can she start?
– A friend
A. Your friend should work with a qualified tax advisor to investigate her story and determine if she or not should have filed tax returns over the years.
Note that even though she has only performed odd tasks, the IRS says that all income must be reported. Specifically, it says it includes “cash earned from side job, barter of goods or services, prices, prizes, competitive winnings and gaming revenue. “
When she meets with a tax professional, she will have to decide if she has been self employed for tax purposes, or if she is employed by someone else, said Michael Maye, a Certified Financial Planner and Certified Public Accountant at MJM Financial in Gillette.
“This reaches her goal of paying into social security, including Medicare,” Maye said.
If she is self-employed, she would pay tax as both employer and employee, compared to if she was employed by someone else, in which case the employer would pay the employer part of the payroll tax, he said.
“For W-2 employees, social security is withheld from their pay while self-employed persons pay their social security taxes when they file their tax returns, ”Maye said.
To be eligible to collect social security down the road, a person must also have 40 social security. By 2022, one person will receive one credit for every $ 1,510 in earnings up to a maximum of four credits a year, Maye said.
He also noted that the number of credits for a person who is unable to work due to significant health problems can be much lower.
If your friend has ever been married, even though she is now divorced, she may be eligible for a spouse’s social security benefits even if she does not qualify for her own earnings, Maye said.
In the end, he recommends that she go to My social security website to create an account to see if she has already earned any credits based on her past work.
Mail your questions to [email protected].
Karin Price Mueller writes Confused column for NJ Advance Media and is the founder of NJMoneyHelp.com. Follow NJMoneyHelp on Twitter @NJMoneyHelp. find NJMoneyHelp on Facebook. sign up NJMoneyHelp.com‘s weekly e-newsletter.