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File 1040nr online 1. File 1040nr online   Definitions You Need To Know Table of Contents Other options. File 1040nr online Exception. File 1040nr online Certain terms used in this publication are defined below. File 1040nr online The same term used in another publication may have a slightly different meaning. File 1040nr online Annual additions. File 1040nr online   Annual additions are the total of all your contributions in a year, employee contributions (not including rollovers), and forfeitures allocated to a participant's account. File 1040nr online Annual benefits. File 1040nr online   Annual benefits are the benefits to be paid yearly in the form of a straight life annuity (with no extra benefits) under a plan to which employees do not contribute and under which no rollover contributions are made. File 1040nr online Business. File 1040nr online   A business is an activity in which a profit motive is present and economic activity is involved. File 1040nr online Service as a newspaper carrier under age 18 or as a public official is not a business. File 1040nr online Common-law employee. File 1040nr online   A common-law employee is any individual who, under common law, would have the status of an employee. File 1040nr online A leased employee can also be a common-law employee. File 1040nr online   A common-law employee is a person who performs services for an employer who has the right to control and direct the results of the work and the way in which it is done. File 1040nr online For example, the employer: Provides the employee's tools, materials, and workplace, and Can fire the employee. File 1040nr online   Common-law employees are not self-employed and cannot set up retirement plans for income from their work, even if that income is self-employment income for social security tax purposes. File 1040nr online For example, common-law employees who are ministers, members of religious orders, full-time insurance salespeople, and U. File 1040nr online S. File 1040nr online citizens employed in the United States by foreign governments cannot set up retirement plans for their earnings from those employments, even though their earnings are treated as self-employment income. File 1040nr online   However, an individual may be a common-law employee and a self-employed person as well. File 1040nr online For example, an attorney can be a corporate common-law employee during regular working hours and also practice law in the evening as a self-employed person. File 1040nr online In another example, a minister employed by a congregation for a salary is a common-law employee even though the salary is treated as self-employment income for social security tax purposes. File 1040nr online However, fees reported on Schedule C (Form 1040), Profit or Loss From Business, for performing marriages, baptisms, and other personal services are self-employment earnings for qualified plan purposes. File 1040nr online Compensation. File 1040nr online   Compensation for plan allocations is the pay a participant received from you for personal services for a year. File 1040nr online You can generally define compensation as including all the following payments. File 1040nr online Wages and salaries. File 1040nr online Fees for professional services. File 1040nr online Other amounts received (cash or noncash) for personal services actually rendered by an employee, including, but not limited to, the following items. File 1040nr online Commissions and tips. File 1040nr online Fringe benefits. File 1040nr online Bonuses. File 1040nr online   For a self-employed individual, compensation means the earned income, discussed later, of that individual. File 1040nr online   Compensation generally includes amounts deferred in the following employee benefit plans. File 1040nr online These amounts are elective deferrals. File 1040nr online Qualified cash or deferred arrangement (section 401(k) plan). File 1040nr online Salary reduction agreement to contribute to a tax-sheltered annuity (section 403(b) plan), a SIMPLE IRA plan, or a SARSEP. File 1040nr online Section 457 nonqualified deferred compensation plan. File 1040nr online Section 125 cafeteria plan. File 1040nr online   However, an employer can choose to exclude elective deferrals under the above plans from the definition of compensation. File 1040nr online The limit on elective deferrals is discussed in chapter 2 under Salary Reduction Simplified Employee Pension (SARSEP) and in chapter 4. File 1040nr online Other options. File 1040nr online   In figuring the compensation of a participant, you can treat any of the following amounts as the employee's compensation. File 1040nr online The employee's wages as defined for income tax withholding purposes. File 1040nr online The employee's wages you report in box 1 of Form W-2, Wage and Tax Statement. File 1040nr online The employee's social security wages (including elective deferrals). File 1040nr online   Compensation generally cannot include either of the following items. File 1040nr online Nontaxable reimbursements or other expense allowances. File 1040nr online Deferred compensation (other than elective deferrals). File 1040nr online SIMPLE plans. File 1040nr online   A special definition of compensation applies for SIMPLE plans. File 1040nr online See chapter 3. File 1040nr online Contribution. File 1040nr online   A contribution is an amount you pay into a plan for all those participating in the plan, including self-employed individuals. File 1040nr online Limits apply to how much, under the contribution formula of the plan, can be contributed each year for a participant. File 1040nr online Deduction. File 1040nr online   A deduction is the plan contributions you can subtract from gross income on your federal income tax return. File 1040nr online Limits apply to the amount deductible. File 1040nr online Earned income. File 1040nr online   Earned income is net earnings from self-employment, discussed later, from a business in which your services materially helped to produce the income. File 1040nr online   You can also have earned income from property your personal efforts helped create, such as royalties from your books or inventions. File 1040nr online Earned income includes net earnings from selling or otherwise disposing of the property, but it does not include capital gains. File 1040nr online It includes income from licensing the use of property other than goodwill. File 1040nr online   Earned income includes amounts received for services by self-employed members of recognized religious sects opposed to social security benefits who are exempt from self-employment tax. File 1040nr online   If you have more than one business, but only one has a retirement plan, only the earned income from that business is considered for that plan. File 1040nr online Employer. File 1040nr online   An employer is generally any person for whom an individual performs or did perform any service, of whatever nature, as an employee. File 1040nr online A sole proprietor is treated as his or her own employer for retirement plan purposes. File 1040nr online However, a partner is not an employer for retirement plan purposes. File 1040nr online Instead, the partnership is treated as the employer of each partner. File 1040nr online Highly compensated employee. File 1040nr online   A highly compensated employee is an individual who: Owned more than 5% of the interest in your business at any time during the year or the preceding year, regardless of how much compensation that person earned or received, or For the preceding year, received compensation from you of more than $115,000 (if the preceding year is 2012, 2013, or 2014) and, if you so choose, was in the top 20% of employees when ranked by compensation. File 1040nr online Leased employee. File 1040nr online   A leased employee who is not your common-law employee must generally be treated as your employee for retirement plan purposes if he or she does all the following. File 1040nr online Provides services to you under an agreement between you and a leasing organization. File 1040nr online Has performed services for you (or for you and related persons) substantially full time for at least 1 year. File 1040nr online Performs services under your primary direction or control. File 1040nr online Exception. File 1040nr online   A leased employee is not treated as your employee if all the following conditions are met. File 1040nr online Leased employees are not more than 20% of your non-highly compensated work force. File 1040nr online The employee is covered under the leasing organization's qualified pension plan. File 1040nr online The leasing organization's plan is a money purchase pension plan that has all the following provisions. File 1040nr online Immediate participation. File 1040nr online (This requirement does not apply to any individual whose compensation from the leasing organization in each plan year during the 4-year period ending with the plan year is less than $1,000. File 1040nr online ) Full and immediate vesting. File 1040nr online A nonintegrated employer contribution rate of at least 10% of compensation for each participant. File 1040nr online However, if the leased employee is your common-law employee, that employee will be your employee for all purposes, regardless of any pension plan of the leasing organization. File 1040nr online Net earnings from self-employment. File 1040nr online   For SEP and qualified plans, net earnings from self-employment is your gross income from your trade or business (provided your personal services are a material income-producing factor) minus allowable business deductions. File 1040nr online Allowable deductions include contributions to SEP and qualified plans for common-law employees and the deduction allowed for the deductible part of your self-employment tax. File 1040nr online   Net earnings from self-employment does not include items excluded from gross income (or their related deductions) other than foreign earned income and foreign housing cost amounts. File 1040nr online   For the deduction limits, earned income is net earnings for personal services actually rendered to the business. File 1040nr online You take into account the income tax deduction for the deductible part of self-employment tax and the deduction for contributions to the plan made on your behalf when figuring net earnings. File 1040nr online   Net earnings include a partner's distributive share of partnership income or loss (other than separately stated items, such as capital gains and losses). File 1040nr online It does not include income passed through to shareholders of S corporations. File 1040nr online Guaranteed payments to limited partners are net earnings from self-employment if they are paid for services to or for the partnership. File 1040nr online Distributions of other income or loss to limited partners are not net earnings from self-employment. File 1040nr online   For SIMPLE plans, net earnings from self-employment is the amount on line 4 of Short Schedule SE or line 6 of Long Schedule SE (Form 1040), Self-Employment Tax, before subtracting any contributions made to the SIMPLE plan for yourself. File 1040nr online Qualified plan. File 1040nr online   A qualified plan is a retirement plan that offers a tax-favored way to save for retirement. File 1040nr online You can deduct contributions made to the plan for your employees. File 1040nr online Earnings on these contributions are generally tax free until distributed at retirement. File 1040nr online Profit-sharing, money purchase, and defined benefit plans are qualified plans. File 1040nr online A 401(k) plan is also a qualified plan. File 1040nr online Participant. File 1040nr online   A participant is an eligible employee who is covered by your retirement plan. File 1040nr online See the discussions of the different types of plans for the definition of an employee eligible to participate in each type of plan. File 1040nr online Partner. File 1040nr online   A partner is an individual who shares ownership of an unincorporated trade or business with one or more persons. File 1040nr online For retirement plans, a partner is treated as an employee of the partnership. File 1040nr online Self-employed individual. File 1040nr online   An individual in business for himself or herself, and whose business is not incorporated, is self-employed. File 1040nr online Sole proprietors and partners are self-employed. File 1040nr online Self-employment can include part-time work. File 1040nr online   Not everyone who has net earnings from self-employment for social security tax purposes is self-employed for qualified plan purposes. File 1040nr online See Common-law employee and Net earnings from self-employment , earlier. File 1040nr online   In addition, certain fishermen may be considered self-employed for setting up a qualified plan. File 1040nr online See Publication 595, Capital Construction Fund for Commercial Fishermen, for the special rules used to determine whether fishermen are self-employed. File 1040nr online Sole proprietor. File 1040nr online   A sole proprietor is an individual who owns an unincorporated business by himself or herself, including a single member limited liability company that is treated as a disregarded entity for tax purposes. File 1040nr online For retirement plans, a sole proprietor is treated as both an employer and an employee. File 1040nr online Prev  Up  Next   Home   More Online Publications
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File 1040nr online 12. File 1040nr online   Self-Employment Tax Table of Contents What's New for 2013 What's New for 2014 Introduction Topics - This chapter discusses: Useful Items - You may want to see: Why Pay Self-Employment Tax? How To Pay Self-Employment TaxReplacing a lost social security card. File 1040nr online Name change. File 1040nr online Penalty for underpayment of estimated tax. File 1040nr online Who Must Pay Self-Employment Tax?Limited partner. File 1040nr online Community property. File 1040nr online Figuring Self-Employment EarningsLandlord Participation in Farming Methods for Figuring Net EarningsRegular Method Farm Optional Method Nonfarm Optional Method Using Both Optional Methods Reporting Self-Employment Tax What's New for 2013 Tax rates. File 1040nr online  For tax years beginning in 2013, the social security part of the self-employment tax increases from 10. File 1040nr online 4% to 12. File 1040nr online 4%. File 1040nr online The Medicare part of the tax remains at 2. File 1040nr online 9%. File 1040nr online As a result, the self-employment tax is increased from 13. File 1040nr online 3% to 15. File 1040nr online 3%. File 1040nr online Additional Medicare Tax. File 1040nr online . File 1040nr online  For tax years beginning in 2013, a 0. File 1040nr online 9% Additional Medicare Tax applies to your Medicare wages, Railroad Retirement Tax Act (RRTA) compensation, and self-employment income above a threshold amount. File 1040nr online Use Form 8959, Additional Medicare Tax, to figure this tax. File 1040nr online For more information, see the Instructions for Form 8959. File 1040nr online Maximum net earnings. File 1040nr online  The maximum net self-employment earnings subject to the social security part (12. File 1040nr online 4%) of the self-employment tax increased to $113,700 for 2013. File 1040nr online There is no maximum limit on earnings subject to the Medicare part (2. File 1040nr online 9%). File 1040nr online What's New for 2014 Maximum net earnings. File 1040nr online  The maximum net self-employment earnings subject to the social security part of the self-employment tax for 2014 will be discussed in the 2013 Publication 334. File 1040nr online Introduction Self-employment tax (SE tax) is a social security and Medicare tax primarily for individuals who work for themselves. File 1040nr online It is similar to the social security and Medicare taxes withheld from the pay of most wage earners. File 1040nr online You usually have to pay SE tax if you are self-employed. File 1040nr online You are usually self-employed if you operate your own farm on land you either own or rent. File 1040nr online You have to figure SE tax on Schedule SE (Form 1040). File 1040nr online Farmers who have employees may have to pay the employer's share of social security and Medicare taxes, as well. File 1040nr online See chapter 13 for information on employment taxes. File 1040nr online Self-employment tax rate. File 1040nr online   For tax years beginning in 2013, the self-employment tax rate is 15. File 1040nr online 3%. File 1040nr online The rate consists of two parts: 12. File 1040nr online 4% for social security (old-age, survivors, and disability insurance) and 2. File 1040nr online 9% for Medicare (hospital insurance). File 1040nr online Topics - This chapter discusses: Why pay self-employment tax How to pay self-employment tax Who must pay self-employment tax Figuring self-employment earnings Landlord participation in farming Methods for figuring net earnings Reporting self-employment tax Useful Items - You may want to see: Publication 541 Partnerships Form (and Instructions) 1040 U. File 1040nr online S. File 1040nr online Individual Income Tax Return Sch F (Form 1040) Profit or Loss From Farming Sch SE (Form 1040) Self-Employment Tax 1065 U. File 1040nr online S. File 1040nr online Return of Partnership Income Sch K-1 (Form 1065) Partner's Share of Income, Deductions, Credits, etc. File 1040nr online See chapter 16 for information about getting publications and forms. File 1040nr online Why Pay Self-Employment Tax? Social security benefits are available to self-employed persons just as they are to wage earners. File 1040nr online Your payments of SE tax contribute to your coverage under the social security system. File 1040nr online Social security coverage provides you with retirement benefits, disability benefits, survivor benefits, and hospital insurance (Medicare) benefits. File 1040nr online How to become insured under social security. File 1040nr online   You must be insured under the social security system before you begin receiving social security benefits. File 1040nr online You are insured if you have the required number of credits (also called quarters of coverage). File 1040nr online Earning credits in 2013. File 1040nr online   You can earn a maximum of four credits per year. File 1040nr online For 2013, you earn one credit for each $1,160 of combined wages and self-employment earnings subject to social security tax. File 1040nr online You need $4,640 ($1,160 × 4) of combined wages and self-employment earnings subject to social security tax to earn four credits in 2013. File 1040nr online It does not matter whether the income is earned in 1 quarter or is spread over 2 or more quarters. File 1040nr online For an explanation of the number of credits you must have to be insured and the benefits available to you and your family under the social security program, consult your nearest Social Security Administration (SSA) office or visit the SSA website at www. File 1040nr online socialsecurity. File 1040nr online gov. File 1040nr online Making false statements to get or to increase social security benefits may subject you to penalties. File 1040nr online The Social Security Administration (SSA) time limit for posting self-employment earnings. File 1040nr online   Generally, the SSA will give you credit only for self-employment earnings reported on a tax return filed within 3 years, 3 months, and 15 days after the tax year you earned the income. File 1040nr online    If you file your tax return or report a change in your self-employment earnings after the SSA time limit for posting self-employment earnings, the SSA may change its records, but only to remove or reduce the amount. File 1040nr online The SSA will not change its records to increase your self-employment earnings after the SSA time limit listed above. File 1040nr online How To Pay Self-Employment Tax To pay SE tax, you must have a social security number (SSN) or an individual taxpayer identification number (ITIN). File 1040nr online This section explains how to: Obtain an SSN or ITIN, and Pay your SE tax using estimated tax. File 1040nr online An ITIN does not entitle you to social security benefits. File 1040nr online Obtaining an ITIN does not change your immigration or employment status under U. File 1040nr online S. File 1040nr online law. File 1040nr online Obtaining a social security number. File 1040nr online   If you have never had an SSN, apply for one using Form SS-5, Application for a Social Security Card. File 1040nr online The application is also available in Spanish. File 1040nr online You can get this form at any Social Security office or by calling 1-800-772-1213. File 1040nr online    You can also download Form SS-5 from the Social Security Administration website at  www. File 1040nr online socialsecurity. File 1040nr online gov. File 1040nr online   If you have a social security number from the time you were an employee, you must use that number. File 1040nr online Do not apply for a new one. File 1040nr online Replacing a lost social security card. File 1040nr online   If you have a number but lost your card, file Form SS-5. File 1040nr online You will get a new card showing your original number, not a new number. File 1040nr online Name change. File 1040nr online   If your name has changed since you received your social security card, complete Form SS-5 to report a name change. File 1040nr online Obtaining an individual taxpayer identification number. File 1040nr online   The IRS will issue you an ITIN, for tax use only, if you are a nonresident or resident alien and you do not have, and are not eligible to get, an SSN. File 1040nr online To apply for an ITIN, file Form W-7, Application for IRS Individual Taxpayer Identification Number. File 1040nr online You can get this form by calling 1-800-829-3676. File 1040nr online For more information on ITINs, see Publication 1915, Understanding Your IRS Individual Taxpayer Identification Number. File 1040nr online Form W-7 and Publication 1915 are also available in Spanish. File 1040nr online    You can also download Form W-7 from the IRS website at IRS. File 1040nr online gov. File 1040nr online Paying estimated tax. File 1040nr online   Estimated tax is the method used to pay tax (including SE tax) on income not subject to withholding. File 1040nr online You generally have to make estimated tax payments if you expect to owe tax, including SE tax, of $1,000 or more when you file your return. File 1040nr online Use Form 1040-ES, Estimated Tax for Individuals, to figure and pay the tax. File 1040nr online   However, if at least two-thirds of your gross income for 2013 or 2014 was from farming and you file your 2014 Form 1040 and pay all the tax due by March 2, 2015, you do not have to pay any estimated tax. File 1040nr online For more information about estimated tax for farmers, see chapter 15. File 1040nr online Penalty for underpayment of estimated tax. File 1040nr online   You may have to pay a penalty if you do not pay enough estimated tax by its due date. File 1040nr online Who Must Pay Self-Employment Tax? You must pay SE tax and file Schedule SE (Form 1040) if your net earnings from self-employment were $400 or more. File 1040nr online The SE tax rules apply no matter how old you are and even if you are already receiving social security or Medicare benefits. File 1040nr online Aliens. File 1040nr online   Generally, resident aliens must pay self-employment tax under the same rules that apply to U. File 1040nr online S. File 1040nr online citizens. File 1040nr online Nonresident aliens are not subject to self-employment tax. File 1040nr online However, residents of the Virgin Islands, Puerto Rico, Guam, the Commonwealth of the Northern Mariana Islands, or American Samoa are subject to self-employment tax, as they are considered U. File 1040nr online S. File 1040nr online residents for self-employment tax purposes. File 1040nr online For more information on aliens, see Publication 519, U. File 1040nr online S. File 1040nr online Tax Guide for Aliens. File 1040nr online Are you self-employed?   You are self-employed if you carry on a trade or business (such as running a farm) as a sole proprietor, an independent contractor, a member of a partnership, or are otherwise in business for yourself. File 1040nr online A trade or business is generally an activity carried on for a livelihood or in good faith to make a profit. File 1040nr online Share farmer. File 1040nr online   You are a self-employed farmer under an income-sharing arrangement if both the following apply. File 1040nr online You produce a crop or raise livestock on land belonging to another person. File 1040nr online Your share of the crop or livestock, or the proceeds from their sale, depends on the amount produced. File 1040nr online Your net farm profit or loss from the income-sharing arrangement is reported on Schedule F (Form 1040) and included in your self-employment earnings. File 1040nr online   If you produce a crop or livestock on land belonging to another person and are to receive a specified rate of pay, a fixed sum of money, or a fixed quantity of the crop or livestock, and not a share of the crop or livestock or their proceeds, you may be either self-employed or an employee of the landowner. File 1040nr online This will depend on whether the landowner has the right to direct or control your performance of services. File 1040nr online Example. File 1040nr online A share farmer produces a crop on land owned by another person on a 50-50 crop-share basis. File 1040nr online Under the terms of their agreement, the share farmer furnishes the labor and half the cost of seed and fertilizer. File 1040nr online The landowner furnishes the machinery and equipment used to produce and harvest the crop, and half the cost of seed and fertilizer. File 1040nr online The share farmer is provided a house in which to live. File 1040nr online The landowner and the share farmer decide on a cropping plan. File 1040nr online The share farmer is a self-employed farmer for purposes of the agreement to produce the crops, and the share farmer's part of the profit or loss from the crops is reported on Schedule F (Form 1040) and included in self-employment earnings. File 1040nr online The tax treatment of the landowner is discussed later under Landlord Participation in Farming. File 1040nr online Contract farming. File 1040nr online   Under typical contract farming arrangements, the grower receives a fixed payment per unit of crops or finished livestock delivered to the processor or packing company. File 1040nr online Since the grower typically furnishes labor and bears some production risk, the payments are reported on Schedule F and are therefore subject to self-employment tax. File 1040nr online 4-H Club or FFA project. File 1040nr online   If an individual participates in a 4-H Club or Future Farmers of America (FFA) project, any net income received from sales or prizes related to the project may be subject to income tax. File 1040nr online Report the net income as “Other income” on line 21 of Form 1040. File 1040nr online If necessary, attach a statement showing the gross income and expenses. File 1040nr online The net income may not be subject to SE tax if the project is primarily for educational purposes and not for profit, and is completed by the individual under the rules and economic restrictions of the sponsoring 4-H or FFA organization. File 1040nr online Such a project is generally not considered a trade or business. File 1040nr online Partners in a partnership. File 1040nr online   Generally, you are self-employed if you are a member of a partnership that carries on a trade or business. File 1040nr online Limited partner. File 1040nr online   If you are a limited partner, your partnership income is generally not subject to SE tax. File 1040nr online However, guaranteed payments you receive for services you perform for the partnership are subject to SE tax and should be reported to you in box 14 of your Schedule K-1 (Form 1065). File 1040nr online Business Owned and Operated by Spouses. File 1040nr online   If you and your spouse jointly own and operate a farm as an unincorporated business and share in the profits and losses, you are partners in a partnership whether or not you have a formal partnership agreement. File 1040nr online You must file Form 1065, instead of Schedule F, unless you make a joint election to be treated as a qualified joint venture. File 1040nr online Making this election will allow you to avoid the complexity of Form 1065 but still give each spouse credit for social security earnings on which retirement benefits are based. File 1040nr online Qualified joint venture. File 1040nr online   If you and your spouse each materially participate as the only members of a jointly owned and operated farm, and you file a joint tax return for the tax year, you can make a joint election to be treated as a qualified joint venture instead of a partnership for the tax year. File 1040nr online For an explanation of “material participation,” see the instructions for Schedule C, line G, and the instructions for Schedule F, line E. File 1040nr online   To make this election, you must divide all items of income, gain, loss, deduction, and credit attributable to the business between you and your spouse in accordance with your respective interests in the venture. File 1040nr online Each of you must file a separate Schedule F and a separate Schedule SE. File 1040nr online For more information, see Qualified Joint Venture in the Instructions for Schedule SE (Form 1040). File 1040nr online Spouse employee. File 1040nr online   If your spouse is your employee, not your partner, you must withhold and pay social security and Medicare taxes for him or her. File 1040nr online For more information about employment taxes, see chapter 13. File 1040nr online Community property. File 1040nr online   If you are a partner and your distributive share of any income or loss from a trade or business carried on by the partnership is community property, treat your share as your self-employment earnings. File 1040nr online Do not treat any of your share as self-employment earnings of your spouse. File 1040nr online Figuring Self-Employment Earnings Farmer. File 1040nr online   If you are self-employed as a farmer, use Schedule F (Form 1040) to figure your self-employment earnings. File 1040nr online Partnership income or loss. File 1040nr online   If you are a member of a partnership that carries on a trade or business, the partnership should report your self-employment earnings in box 14, code A, of your Schedule K-1 (Form 1065). File 1040nr online Box 14 of Schedule K-1 may also provide amounts for gross farming or fishing income (code B) and gross nonfarm income (code C). File 1040nr online Use these amounts if you use the farm or nonfarm optional method to figure net earnings from self-employment (see Methods for Figuring Net Earnings , later). File 1040nr online   If you are a general partner, you may need to reduce these reported earnings by amounts you claim as a section 179 deduction, unreimbursed partnership expenses, or depletion on oil and gas properties. File 1040nr online   If the amount reported is a loss, include only the deductible amount when you figure your total self-employment earnings. File 1040nr online   For more information, see the Partner's Instructions for Schedule K-1 (Form 1065). File 1040nr online   For general information on partnerships, see Publication 541. File 1040nr online More than one business. File 1040nr online   If you have self-employment earnings from more than one trade, business, or profession, you generally must combine the net profit or loss from each to determine your total self-employment earnings. File 1040nr online A loss from one business reduces your profit from another business. File 1040nr online However, do not combine earnings from farm and nonfarm businesses if you are using one of the optional methods (discussed later) to figure net earnings. File 1040nr online Community property. File 1040nr online   If any of the income from a farm or business, other than a partnership, is community property under state law, it is included in the self-employment earnings of the spouse carrying on the trade or business. File 1040nr online Lost income payments. File 1040nr online   Lost income payments received from insurance or other sources for reducing or stopping farming activities are included in self-employment earnings. File 1040nr online These include USDA payments to compensate for lost income resulting from reductions in tobacco quotas and allotments. File 1040nr online Even if you are not farming when you receive the payment, it is included in self-employment earnings if it relates to your farm business (even though it is temporarily inactive). File 1040nr online A connection exists if it is clear the payment would not have been made but for your conduct of your farm business. File 1040nr online Gain or loss. File 1040nr online   A gain or loss from the disposition of property that is neither stock in trade nor held primarily for sale to customers is not included in self-employment earnings. File 1040nr online It does not matter whether the disposition is a sale, exchange, or involuntary conversion. File 1040nr online For example, gains or losses from the disposition of the following types of property are not included in self-employment earnings. File 1040nr online Investment property. File 1040nr online Depreciable property or other fixed assets used in your trade or business. File 1040nr online Livestock held for draft, breeding, sport, or dairy purposes, and not held primarily for sale, regardless of how long the livestock was held, or whether it was raised or purchased. File 1040nr online Unharvested standing crops sold with land held more than 1 year. File 1040nr online Timber, coal, or iron ore held for more than 1 year if an economic interest was retained, such as a right to receive coal royalties. File 1040nr online   A gain or loss from the cutting of timber is not included in self-employment earnings if the cutting is treated as a sale or exchange. File 1040nr online For more information on electing to treat the cutting of timber as a sale or exchange, see Timber in chapter 8. File 1040nr online Wages and salaries. File 1040nr online   Wages and salaries received for services performed as an employee and covered by social security or railroad retirement are not included in self-employment earnings. File 1040nr online   Wages paid in kind to you for agricultural labor, such as commodity wages, are not included in self-employment earnings. File 1040nr online Retired partner. File 1040nr online   Retirement income received by a partner from his or her partnership under a written plan is not included in self-employment earnings if all the following apply. File 1040nr online The retired partner performs no services for the partnership during the year. File 1040nr online The retired partner is owed only the retirement payments. File 1040nr online The retired partner's share (if any) of the partnership capital was fully paid to the retired partner. File 1040nr online The payments to the retired partner are lifelong periodic payments. File 1040nr online Conservation Reserve Program (CRP) payments. File 1040nr online   Under the Conservation Reserve Program (CRP), if you own or operate highly erodible or other specified cropland, you may enter into a longterm contract with the USDA, agreeing to convert to a less intensive use of that cropland. File 1040nr online You must include the annual rental payments and any onetime incentive payment you receive under the program on Schedule F, lines 4a and 4b. File 1040nr online Cost share payments you receive may qualify for the costsharing exclusion. File 1040nr online See Cost-Sharing Exclusion (Improvements), above. File 1040nr online CRP payments are reported to you on Form 1099G. File 1040nr online Individuals who are receiving Social Security retirement or disability benefits may exclude CRP payments when calculating self-employment tax. File 1040nr online See the instructions for Schedule SE (Form 1040). File 1040nr online Self-employed health insurance deduction. File 1040nr online   You cannot deduct the self-employed health insurance deduction you report on Form 1040, line 29, from self-employment earnings on Schedule SE (Form 1040). File 1040nr online Landlord Participation in Farming As a general rule, income and deductions from rentals and from personal property leased with real estate are not included in determining self-employment earnings. File 1040nr online However, income and deductions from farm rentals, including government commodity program payments received by a landowner who rents land, are included if the rental arrangement provides that the landowner will, and does, materially participate in the production or management of production of the farm products on the land. File 1040nr online Crop shares. File 1040nr online   Rent paid in the form of crop shares is included in self-employment earnings for the year you sell, exchange, give away, or use the crop shares if you meet one of the four material participation tests (discussed next) at the time the crop shares are produced. File 1040nr online Feeding such crop shares to livestock is considered using them. File 1040nr online Your gross income for figuring your self-employment earnings includes the fair market value of the crop shares when they are used as feed. File 1040nr online Material participation for landlords. File 1040nr online   You materially participate if you have an arrangement with your tenant for your participation and you meet one or more of the following tests. File 1040nr online You do at least three of the following. File 1040nr online Pay, using cash or credit, at least half the direct costs of producing the crop or livestock. File 1040nr online Furnish at least half the tools, equipment, and livestock used in the production activities. File 1040nr online Advise or consult with your tenant. File 1040nr online Inspect the production activities periodically. File 1040nr online You regularly and frequently make, or take an important part in making, management decisions substantially contributing to or affecting the success of the enterprise. File 1040nr online You work 100 hours or more spread over a period of 5 weeks or more in activities connected with agricultural production. File 1040nr online You do things that, considered in their totality, show you are materially and significantly involved in the production of the farm commodities. File 1040nr online These tests may be used as general guides for determining whether you are a material participant. File 1040nr online Example. File 1040nr online Drew Houston agrees to produce a crop on J. File 1040nr online Clarke's cotton farm, with each receiving half the proceeds. File 1040nr online Clarke advises Houston when to plant, spray, and pick the cotton. File 1040nr online During the growing season, Clarke inspects the crop every few days to determine whether Houston is properly taking care of the crop. File 1040nr online Houston furnishes all labor needed to grow and harvest the crop. File 1040nr online The management decisions made by Clarke in connection with the care of the cotton crop and his regular inspection of the crop establish that he participates to a material degree in the cotton production operations. File 1040nr online The income Clarke receives from his cotton farm is included in his self-employment earnings. File 1040nr online Methods for Figuring Net Earnings There are three ways to figure your net earnings from self-employment. File 1040nr online The regular method. File 1040nr online The farm optional method. File 1040nr online The nonfarm optional method. File 1040nr online You must use the regular method unless you are eligible to use one or both of the optional methods. File 1040nr online See Figure 12-1 , shown later. File 1040nr online Figure 12-1. File 1040nr online Can I Use the Optional Methods? Please click here for the text description of the image. File 1040nr online Figure 12–1. File 1040nr online Can I Use the Optional Methods? Why use an optional method?   You may want to use the optional methods (discussed later) when you have a loss or a small net profit and any one of the following applies. File 1040nr online You want to receive credit for social security benefit coverage. File 1040nr online You incurred child or dependent care expenses for which you could claim a credit. File 1040nr online (An optional method may increase your earned income, which could increase your credit. File 1040nr online ) You are entitled to the earned income credit. File 1040nr online (An optional method may increase your earned income, which could increase your credit. File 1040nr online ) You are entitled to the additional child tax credit. File 1040nr online (An optional method may increase your earned income, which could increase your credit. File 1040nr online ) Effects of using an optional method. File 1040nr online   Using an optional method could increase your SE tax. File 1040nr online Paying more SE tax may result in you getting higher social security disability or retirement benefits. File 1040nr online   If you use either or both optional methods, you must figure and pay the SE tax due under these methods even if you would have had a smaller SE tax or no SE tax using the regular method. File 1040nr online   The optional methods may be used only to figure your SE tax. File 1040nr online To figure your income tax, include your actual self-employment earnings in gross income, regardless of which method you use to determine SE tax. File 1040nr online Regular Method Multiply your total self-employment earnings by 92. File 1040nr online 35% (. File 1040nr online 9235) to get your net earnings under the regular method. File 1040nr online See Short Schedule SE, line 4, or Long Schedule SE, line 4a. File 1040nr online Net earnings figured using the regular method are also called “actual net earnings. File 1040nr online ” Farm Optional Method Use the farm optional method only for self-employment earnings from a farming business. File 1040nr online You can use this method if you meet either of the following tests. File 1040nr online Your gross farm income is $6,960 or less. File 1040nr online Your net farm profits are less than $5,024. File 1040nr online Gross farm income. File 1040nr online   Your gross farm income is the total of the amounts from: Schedule F (Form 1040), line 9, and Schedule K-1 (Form 1065), box 14, code B (from farm partnerships). File 1040nr online Net farm profits. File 1040nr online   Net farm profits generally are the total of the amounts from: Schedule F (Form 1040), line 34, and Schedule K-1 (Form 1065), box 14, code A (from farm partnerships). File 1040nr online However, you may need to adjust the amount reported on Schedule K-1 if you are a general partner or if it is a loss. File 1040nr online For more information, see Partnership income or loss , earlier. File 1040nr online Figuring farm net earnings. File 1040nr online   If you meet either of the two tests explained above, use Table 12-1. File 1040nr online Figuring Farm Net Earnings , to figure your net earnings from self-employment under the farm optional method. File 1040nr online Table 12-1. File 1040nr online Figuring Farm Net Earnings IF your gross farm income  is. File 1040nr online . File 1040nr online . File 1040nr online THEN your net earnings are equal to. File 1040nr online . File 1040nr online . File 1040nr online $6,960 or less Two-thirds of your gross farm income. File 1040nr online More than $6,960 $4,640 Optional method can reduce or eliminate SE tax. File 1040nr online   If your gross farm income is $6,960 or less and your farm net earnings figured under the farm optional method are less than your actual net earnings, you can use the farm optional method to reduce or eliminate your SE tax. File 1040nr online Your actual net earnings are your net earnings figured using the regular method, explained earlier. File 1040nr online Example. File 1040nr online Your gross farm income is $540 and your net farm profit is $460. File 1040nr online Consequently, your net earnings figured under the farm optional method are $360 (2/3 of $540) and your actual net earnings are $425 (92. File 1040nr online 35% of $460). File 1040nr online You owe no SE tax if you use the optional method because your net earnings under the farm optional method are less than $400. File 1040nr online Nonfarm Optional Method This is an optional method available for determining net earnings from nonfarm self-employment, much like the farm optional method. File 1040nr online If you are also engaged in a nonfarm business, you may be able to use this method to figure your nonfarm net earnings. File 1040nr online You can use this method even if you do not use the farm optional method for determining your farm net earnings and even if you have a net loss from your nonfarm business. File 1040nr online For more information about the nonfarm optional method, see Publication 334. File 1040nr online You cannot combine farm and nonfarm self-employment earnings to figure your net earnings under either of the optional methods. File 1040nr online Using Both Optional Methods If you use both optional methods, you must add the net earnings figured under each method to arrive at your total net earnings from self-employment. File 1040nr online You can report less than your total actual farm and nonfarm net earnings but not less than actual nonfarm net earnings. File 1040nr online If you use both optional methods, you can report no more than $4,640 as your combined net earnings from self-employment. File 1040nr online Reporting Self-Employment Tax Use Schedule SE (Form 1040) to figure and report your SE tax. File 1040nr online Then, enter the SE tax on line 56 of Form 1040 and attach Schedule SE to Form 1040. File 1040nr online Most taxpayers can use Section A–Short Schedule SE to figure their SE tax. File 1040nr online However, certain taxpayers must use Section B–Long Schedule SE. File 1040nr online Use the chart on page 1 of Schedule SE to find out which one to use. File 1040nr online If you have to pay SE tax, you must file Form 1040 (with Schedule SE attached) even if you do not otherwise have to file a federal income tax return. File 1040nr online Deduction for employer-equivalent portion of self-employment tax. File 1040nr online   You can deduct the employer-equivalent portion of your SE tax in figuring your adjusted gross income. File 1040nr online This deduction only affects your income tax. File 1040nr online It does not affect either your net earnings from self-employment or your SE tax. File 1040nr online   To deduct the tax, enter on Form 1040, line 27, the amount shown on Section A, Line 6, or Section B, line 13, Deduction for employer-equivalent portion of self-employment tax, of the Schedule SE. File 1040nr online Joint return. File 1040nr online   Even if you file a joint return, you cannot file a joint Schedule SE. File 1040nr online This is true whether one spouse or both spouses have self-employment earnings. File 1040nr online Your spouse is not considered self-employed just because you are. File 1040nr online If both of you have self-employment earnings, each of you must complete a separate Schedule SE. File 1040nr online However, if one spouse uses the Short Schedule SE and the other spouse has to use the Long Schedule SE, both can use the same form. File 1040nr online Attach both schedules to the joint return. File 1040nr online If you and your spouse operate a business as a partnership, see Business Owned and Operated by Spouses and Qualified joint venture , earlier, under Who Must Pay Self-Employment Tax . File 1040nr online Prev  Up  Next   Home   More Online Publications