For a long time in my profession I have witnessed sad stories from truck driver friends, that when they reach 65 years old and apply for retirement benefits with the social security administration, the results are very discouraging. Especially since the amount of money which they have a right to is minimal and does not offer a decent retirement.
The above is a consequence of a wrong concept at the time of preparing your tax return, precisely pretending to pay as little as possible in taxes. Why is this a wrong concept? Because the taxes we pay are divided into two classes: one is the federal tax and another is the social security tax. In other words, the less tax you pay, the less money you will send to your social security. Then, we must add that, if you are married, it is very likely that your wife is not contributing to your social security account.
As a general rule, you, as an independent worker, need to pay your social security tax, for your net earnings from this job, regardless of whether it is $400 or more. According to history, to ensure that self-employed people continue to contribute to social insurance and medicare, the federal government passed the Self-Employed Contributions Act (SECA) in 1954.
SECA established that without an employer that pays half of the tax, self-employed persons must pay the total, 15.3%. This tax paid by people who work for their own account is known as SECA, or more simply, the tax on self-employment.
How is the self-employment tax calculated?
The total tax on self-employment is 15.3% of your net earnings and consists of two parts. The first part, 12.4%, is related to Social Security. The law establishes a maximum amount of net earnings that is subject to Social Security tax. The second part of your self-employment tax goes to Medicare. The rate for Medicare reaches 2.9%.
What should you do so that your wife and you can contribute to social security?
You can prepare your tax returns under the "Joint Venture" classification or form a Small Business Corporation and thus have an equal participation in your transportation business. Remember to evaluate and project your retirement situation by the time you reach that age (65 years).