Who Must Pay Self-Employment Tax You must pay SE tax and file Schedule SE if either of the followingapplies. You were self-employed and your net earnings fromself-employment (excluding income described in (2) below) were $400 ormore. You performed services for a church as an employee andreceived income of $108.28 or more. Caution: The SE tax rules apply even if you are fully insured under socialsecurity or have started receiving benefits. TaxTip: If you are a member of the clergy or a religious worker, you maynot have to pay SE tax. See Religious Exemptions, later. Who is self-employed?You are self-employed if you carry on a trade or business as a soleproprietor, an independent contractor, a member of a partnership, orare otherwise in business for yourself. You do not have to carry on regular full-time business activitiesto be self-employed. Part-time work, including work you do on the sidein addition to your regular job, may also be self-employment. What is a trade or business?A trade or business is generallyan activity carried on for a livelihood or in good faith to make aprofit. The facts and circumstances of each case determine whether ornot an activity is a trade or business. Regularity of activities andtransactions and the production of income are important elements. Youdo not need to actually make a profit to be in a trade or business aslong as you have a profit motive. You do need, however, to makeongoing efforts to further the interests of your business. Aliens.Resident aliens are generally subject to the same rules as U.S.citizens. Nonresident aliens do not pay SE tax. Residents of theVirgin Islands, Puerto Rico, Guam, or American Samoa, however, aresubject to the tax. For SE tax purposes, they are not nonresidentaliens. Dealers in options and commodities.Dealers in options and commoditiesmust figure SE income by including gains and losses from dealing ortrading in section 1256 contracts (regulated futures contracts,foreign currency contracts, nonequity options, and dealer equityoptions), or property related to those contracts, such as stock usedto hedge options. See sections 1256 and 1402(i) of the InternalRevenue Code for more information. Executors or administrators.When you administer a deceasedperson's estate, your fees are SE income if you are one of thefollowing. A professional fiduciary. A nonprofessional fiduciary (personal representative),and: The estate includes an active trade or business that youactively participate in, and Your fees are related to the operation of that trade orbusiness. A nonprofessional fiduciary of a single estate that requiresextensive managerial activities on your part for a long period oftime, provided these activities are enough to be considered a trade orbusiness. Report fees that are SE income on Schedule C or C-EZ. If thefees are not SE income, report them on line 21 of Form 1040. Fishing crew members.Certain fishing crew members on a boat that catches fish or otherwater life are self-employed and must make both SE tax payments andgenerally estimated tax payments if all of the following apply. They do not get any money for their work except for theirshare of the catch or of the proceeds from the sale of the catch,unless the pay meets all of the following conditions. The pay is not more than $100 per trip. ERROR MSGThe pay is received only if there is a minimum catch. ERROR MSGThe pay is solely for additional duties (such as mate,engineer, or cook) for which additional cash pay is traditional in thefishing industry. They get shares of the catch or shares of the proceeds fromthe sale of the catch. Their shares depend on the amount of the catch. The operating crew normally numbers fewer than tenindividuals. (An operating crew is considered as normally made up offewer than 10 if the average size of the crew on trips made during thelast four calendar quarters is fewer than 10.) For more information, see Publication 595, Tax Highlights forCommercial Fishermen. Independent contractor.People such as lawyers, accountants, contractors, subcontractors,public stenographers, auctioneers, who follow an independent trade,business, or profession in which they offer their services to thegeneral public are generally not employees. However, whether thosepeople are independent contractors or employees depends on the factsin each case. The general rule is that an individual is an independentcontractor if the payer has the right to control or direct only theresult of the work and not what will be done and how it will be done.Income earned by a person who is working as an independent contractoris SE income. You are not an independent contractor if you perform services thatcan be controlled by an employer (what will be done and how it will bedone). This applies even if you are given freedom of action. Whatmatters is that the employer has the legal right to control thedetails of how the services are performed. If an employer-employeerelationship exists (no matter what the relationship is called), youare not an independent contractor. For more information on determining whether you are an independentcontractor or an employee, see Publication 15-A. cheap hotel in RomeNewspaper carriers and distributors. A special rule applies to services you perform as a newspapercarrier or distributor. You are a direct seller, and are treated asself-employed for federal tax purposes, if all of the followingconditions are met. You are in the business of delivering/distributingnewspapers or shopping news, including directly related services suchas soliciting customers and collecting receipts. Substantially all your pay for these services directlyrelates to sales or other output rather than to the number of hoursworked. You perform the delivery services under a written contractbetween you and the service recipient that states you will not betreated as an employee for federal tax purposes. This rule applies whether or not you hire others to help you makedeliveries. It also applies whether you buy the papers from thepublisher or are paid based on the number of papers you deliver. If you do not meet the above conditions, you may be an employeesubject to having taxes withheld from your pay. As an employee, youwould not have to pay SE tax on this income. Wages newspaper carrieremployees receive for delivering newspapers or shopping news tocustomers are subject to withholding for social security and Medicaretaxes if the carrier is 18 or over. See Publication 15-A formore information about who is an employee. Carriers, distributors, and vendors under age 18.Carriers or distributors (not including those who deliver ordistribute to any point for subsequent delivery or distribution), andvendors (working under a buy-sell arrangement), under the age of 18are not subject to SE tax. Notary public.hoteles AmsterdamFees received for services performed as a notary public are notsubject to SE tax. Public officials.Public officials generally do not pay SE tax on what they earn forserving in public office. This rule applies to payments received by anelected tax collector from state funds on the basis of a fixedpercentage of the taxes collected. Public office includes any electiveor appointive office of the United States or its possessions, theDistrict of Columbia, a state or its political subdivisions, or awholly owned instrumentality of any of these. However, public officials of state or local governments must pay SEtax on their fees if they are paid solely on a fee basis and if theirservices are eligible for, but not covered by, social security under afederal-state agreement. Real estate agents and direct sellers.Income received by a licensed real estate agent or a direct sellermay be SE income. A licensed agent or direct seller generally istreated as self-employed if both of the following apply. Substantially all the pay for services as a real estateagent or direct seller is directly related to sales or other outputrather than to hours worked. The services are performed under a written contract thatprovides that the real estate agent or direct seller will not betreated as an employee for federal tax purposes. For more information, see Publication 15-A. Direct sellersshould also see Publication 911. Retired insurance agents.The income paid by insurance companies to retired insurance agentsthat is based on a percentage of commissions received beforeretirement is SE income. Also, renewal commissions and deferredcommissions for sales made before retirement are generally SE income. However, renewal commissions paid to the survivor of an insuranceagent are not SE income. Former insurance agents.Certain termination payments made to former insurance agents by aninsurance company for services performed for that company are exemptfrom SE tax if all the following requirements are met. The payments are made after December 31, 1997. The payments are received after the agent's agreement toperform services for the company has ended. The agent performs no services for the company after theservice agreement ends and before the end of the tax year. The agent enters into a covenant not to compete against thecompany for at least the 1-year period beginning on the date theservice agreement ended. The payment depends primarily on policies sold by orcredited to the account of the agent during the last year of theservice agreement or on the extent to which those policies remain inforce for some period after the service agreement ends, orboth. The amount of the payment does not depend to any extent onthe length of service or overall earnings from services performed forthe company (regardless of whether eligibility for payment depends onlength of service). Retired ministers.The retirement benefits you receive from a church plan and therental value of any parsonage allowance provided to you after youretire are not SE income, even if the rental value of the parsonage orparsonage allowance is includable in income for income tax purposes. In general, a "church plan" is a plan established andmaintained for its employees by a church or by a convention orassociation of churches that is tax-exempt. Sole proprietor.If you own and operate your own business as a sole proprietor, theincome from your business is SE income. If your spouse works with youin your business, see Partners, later. Statutory employees.If you earned wages as a statutory employee, the box titled"Statutory employee" in box 15 of Form W-2, Wage andTax Statement, will be checked by your employer. You do not paySE tax on those earnings because social security and Medicare taxes(FICA taxes) were withheld. Do not file Schedule SE if you have noother SE income. However, you should file a separate Schedule C (orSchedule C-EZ) to report only the income and expenses related toyour earnings as a statutory employee. Statutory employees include full-time life insurance agents,certain agent or commission drivers and traveling salespersons, andcertain homeworkers. U.S. citizens working in U.S. for a foreign government orinternational organization.If you are a U.S. citizen employed in the United States by aforeign government, a wholly owned instrumentality of a foreigngovernment, or an international organization, you are subject to SEtax if your employer does not deduct social security and Medicaretaxes from your income. Partners If you are a member of a partnership that carries on a trade orbusiness, your distributive share of its income or loss from the tradeor business is included in figuring your SE income. Guaranteedpayments from your partnership should be included, along with yourshare of earnings or losses, when you figure your SE income. For information on partnerships, see Publication 541. Inactive partner.An inactive partner figures SE income by including the distributiveshare of partnership income (or loss) and any guaranteed payments. Limited partner.A limited partner figures SE income by excluding the distributiveshare of partnership income (or loss). But guaranteed payments, suchas salary and professional fees received for services performed duringthe year, are included as SE income. Retired partner.A retired partner pays no SE tax on retirement income received fromthe partnership under a written plan if all of the following apply. The retired partner receives lifelong periodicpayments. The retired partner's share of the partnership capital wasfully paid to the retired partner. The retired partner performs no services for the partnershipduring the year. The retired partner is owed nothing but the retirementpayments by the partnership. Husband and wife partners.You and your spouse may operate a business as a partnership. (Youhave created a partnership with your spouse if you and your spousejoin together in the conduct of a business and share in the profitsand losses.) The partnership must report the business income andexpenses on Form 1065, U.S. Partnership Return of Income,along with Schedule K-1 showing each partner's share ofthe net income. Both of you must report the net income on Form 1040and file separate Schedules SE (Form 1040) to report your individualSE tax. However, if your spouse is your employee, not your partner, youmust pay social security and Medicare taxes for him or her. For moreinformation, see Publication 15. Hoteles con descuento MandaueInvestment club partnership.A member's share of income from an investment club partnership isnot SE income if the club limits its activities to both of thefollowing activities. Investing in savings certificates, stock, orsecurities. Collecting interest or dividends for its members'accounts. Different tax years.If your tax year is not the same as your partnership's, report yourshare of partnership income (or loss) on your return for the year thatincludes the end of the partnership tax year. Example.You file your return on a calendar year basis, but your partnershipuses the fiscal year ending January 31. You must include on yourreturn for calendar year 1999 your distributive share of partnershipearnings and your guaranteed payments for the fiscal year endingJanuary 31, 1999. Death of a partner.When a partner dies, his or her distributive share of partnershipincome (or loss) is figured through the end of the month in which thedeath occurs. This is true even though the decedent's estate or heirsmay succeed to rights in the partnership. The partnership income (orloss) for the year is treated as though it was earned in equal amountseach month. Example.ABC Partnership operates a business. Its tax year ends on December31. A partner dies on August 18. The deceased partner's (and his orher estate's) distributive share of partnership income for the year ofdeath is $12,000. That partner's SE income from the partnership is$8,000 ( 8/12 of $12,000). Religious Exemptions In most cases, ministers, Christian Science practitioners, andmembers of religious orders who have not taken a vow of poverty haveto pay SE tax on their net earnings. But they can get an exemptionfrom SE tax on certain earnings by filing Form 4361, Applicationfor Exemption From Self-Employment Tax for Use by Ministers, Membersof Religious Orders and Christian Science Practitioners. For more information on getting an exemption, see Publication 517. Members of religious orders who have taken a vow of poverty.If you belong to a religious order and took a vow of poverty, youare automatically exempt from SE tax for amounts received whileworking for a church or an integral agency of the church. However,amounts you receive for performing services for an organization otherthan the church are not exempt from SE tax. Members of recognized religious sects opposed to insurance.If you belong to a recognized religious sect that is opposed toinsurance, you may qualify for an exemption from the SE tax. Toqualify, you must be conscientiously opposed to accepting the benefitsof any public or private insurance that makes payments because ofdeath, disability, old age, retirement, or medical care, or thatprovides services for medical care. If you buy a retirement annuityfrom an insurance company, you will not be eligible for thisexemption. Religious opposition based on sect teachings is the onlylegal basis for the exemption. In addition, your religious sect (ordivision) must have existed since December 31, 1950. To get the exemption, you must file in triplicate Form 4029,Application for Exemption From Social Security and Medicare Taxesand Waiver of Benefits, and waive all social security benefits. Employee of a church or church-controlled organization.If you work for a church or a qualified church-controlledorganization that elected exemption from social security and Medicaretaxes, you will have to pay SE tax if you are paid $108.28 or more ina year by the church or organization. However, you can elect to be exempt from these taxes if you are amember of a qualifying religious sect. See Members of recognizedreligious sects opposed to insurance, above. Both you and youremployer must receive an approved copy of the application forexemption from social security coverage before the exemption can takeeffect. Employees use Form 4029 to apply for an exemption.