Since the reform of the self-employed contribution system, the monthly Social Security payment is no longer freely chosen within a wide range: it depends on a forecast of your actual net income, placed within a table of brackets that determines both the contribution base and the resulting fee.
What net income means for contribution purposes
The net income used to determine your contribution bracket isn't exactly your revenue from invoicing, but rather the result of subtracting your activity's deductible expenses from your income, in a way similar (though not identical in every nuance) to the net income calculation you declare for income tax. On top of that net income, a further deduction is generally applied for generic hard-to-justify expenses, before determining the applicable bracket.
How the bracket system works
The regulations set out a table with different monthly net income brackets, each linked to a minimum and maximum contribution base within which the self-employed worker can choose, and therefore to a resulting monthly fee. The higher your projected net income, the higher the applicable bracket and, consequently, the higher the fee, though always within a range the self-employed worker can choose between the minimum and maximum of their bracket.
The year-end reconciliation
Since the fee is paid monthly based on a forecast of income, and actual income is only known for certain once the tax year closes, the system provides for a later reconciliation, once the Tax Agency reports the actual net income declared for income tax that year to Social Security:
- If your actual income was higher than forecast, you may have to pay an additional amount to settle the difference.
- If your actual income was lower, you may be entitled to a refund of part of what you overpaid.
You can change brackets several times a year
Unlike the previous system, where the contribution base stayed fixed unless expressly changed, the current system allows you to change your chosen contribution base up to several times a year, adapting it to how your income actually evolves, which reduces the risk of a year-end reconciliation very different from what you contributed during the year.
Why this fee determines your future benefits
Just as with employees, the contribution base you choose as a self-employed worker determines the amount of your future benefits: retirement pension, temporary incapacity benefit, or cessation-of-activity benefit if you contribute for it. Always contributing at the lowest possible bracket lowers your current monthly fee, but also proportionally reduces your future entitlements.
Simulate your future pension as a self-employed worker
Our retirement pension calculator lets you get a rough estimate of how your contribution years and income level affect your future retirement pension, a factor worth considering when deciding which contribution bracket to choose.