Self-employment is an increasingly popular employment objective for individuals with disabilities, because it offers both significant flexibility as well as earnings potential. In this blog we will help in understanding Net Earnings from Self Employment (NESE), how it interacts with Trial Work Period, what Special Work Incentives are available, and when Impairment Related Work Expenses apply.
Understanding Net Earnings from Self-employment:
For people who are self-employed, Social Security does not count gross profits the business generates, but rather “Net Earning from Self-employment” (NESE). Here is a brief explanation of turning net income into NESE.
- When determining NESE, Social Security gives self-employed individuals credit for paying the employer’s 7.65% share of the Social Security and Medicare taxes in addition to the 7.65% share they would normally pay as an employee.
- When determining NESE for a current calendar year, Social Security will take the estimated profit that you the beneficiary expects and multiply the estimated net profit of the business by .9235.
- Net earnings are your gross earnings from your trade or business, minus your allowable business deductions.
What About Trial Work Period and Self-Employment:
- It is important to track and report to Social Security your self-employment profit and loss monthly. If month by month profit and loss statements are not provided, Social Security will determine if you used a Trial Work Period month by dividing the NESE earnings for the particular work period by the months in which you engaged in self-employment. Averaging NESE in this manner, over a period of months may not always be in your best interest and may cause you to use more Trial Work Period months than if you used monthly profit and loss statements.
- You would use a Trial Work Period month if your NESE is over the Trial Work Period amount ($970 in 2022), or if you work more than 80 hours in your business. Therefore, you should keep track of the hours worked in the business.
Special Work Incentives:
- Unincurred Business Expenses – Social Security deducts from your NESE any business expenses that incurred and that another person or agency paid for. The item or service must meet the IRS definition of legitimate business expense, the value of which is determined by a variety of methods.
- Unpaid Help – Another potential deduction occurs when someone receives free help operating the business. Social Security can deduct the amount of wages the business would otherwise have paid the person if the business had to purchase the services.
When to Apply Impairment Related Work Expenses (IRWE):
- Many Expenses that qualify as IRWEs also meet the IRS definition of allowable business expenses. When this is the case, it is much more advantageous for you to deduct the expense when determining net profit since this would decrease your taxable income AND decrease the NESE for Social Security purposes.
- It is important to note that you may not deduct the same expense as both an IRS deduction and as an IRWE when Social Security is determining countable NESE.
- If the expense in question does NOT meet the IRS definition of allowable business expense, then you should explore the option of claiming the expense as an IRWE.
Mission Possible has benefits counselors on staff to help you understand how self-employment will affect your benefits. Call us with questions or for more information 888-359-2366.
~ Tina
Resource link used for this blog: https://vcu-ntdc.org/resources/ntcmanual.cfm
Recent Comments