Social Security Taxes

• Social Security covers retirement, disability and survivor benefits for qualifying individuals. Social Security reports that 96 percent of workers in the U.S. have Social Security coverage. Retirement benefits require a minimum of 10 years or 40 credits or quarters of payments into the Social Security system. A quarter requires $1,120 in income for a self-employed individual. Disability benefits require a minimum of six credits or quarters immediately prior to the onset of disability. Survivor benefits require similar credits immediately prior to death of the worker.
  
  

Medicare Taxes

• Individuals who qualify can receive Medicare benefits at age 65, with the hospitalization part of Medicare paid with qualifying credits or quarters of taxes. In 2011, this represents about $450 a month in insurance, according to the Centers for Medicare and Medicaid Services. The qualifying retiree has access to medical insurance at a reduced rate and reduced prescription drug coverage costs through Medicare. Seniors have more medical expenses than younger individuals and need Medicare to cover unexpected events after retirement.
  
  

Effect of Failure to Pay FICA Taxes

• A self-employed worker who does not pay Social Security taxes loses the availability of Social Security disability monthly payments as well as survivor monthly benefits for family in case of death. If the worker lives to retirement age and does not have sufficient credits for Social Security, he does not qualify for monthly Social Security benefits. The self-employed individual who does not pay FICA taxes does not have sufficient credits for Medicare at age 65 and cannot qualify for Medicare coverage. Penalties can apply for failure to deposit FICA taxes on time or failure to deposit the full amount, based on a percentage of tax owed. The IRS may waive penalties for just cause.
  
  

Effect of Some FICA Tax Payments

• Social Security calculates benefits on 35 years of work history and calculates all benefits on the primary insurance amount. The amount is 100 percent of the worker's entitlement at full retirement age. If the worker has sufficient credits to meet Social Security requirements but payments are low for several years, Social Security retirement, disability and survivor benefits will be low. Workers can usually count on Social Security to provide about half of needed income during retirement years, according to the Social Security Administration. A self-employed worker who has not paid sufficient Social Security taxes may find this amount to be much less.