You must pay SE tax and file Schedule SE (Form 1040) if either of
the following applies.
- Your net earnings from self-employment (excluding church
employee income ) were $400 or more.
- You had church employee income of $108.28 or more. See
Church employee, later.
Your net earnings from self-employment are based on your
earnings subject to SE tax. Most earnings from self-employment are
subject to SE tax. Some earnings from employment (certain earnings
that are not subject to social security and Medicare taxes) are
subject to SE tax. This section provides information to help you
determine whether you have earnings subject to SE tax.
If you have earnings subject to SE tax, use Schedule SE to figure
your net earnings from self-employment. Before you figure your net
earnings, you generally need to figure your total earnings subject to
SE tax. For more information, see Figuring Earnings Subject to
Self-Employment Tax and Methods for Figuring Net Earnings,
The SE tax rules apply no matter how old you are and even if you
are already getting social security or Medicare benefits.
Resident aliens are generally subject to the same rules that apply
to U.S. citizens. Nonresident aliens are not subject to SE tax.
Residents of the Virgin Islands, Puerto Rico, Guam, the Commonwealth
of the Northern Mariana Islands, or American Samoa, however, are
subject to the tax. For SE tax purposes, they are not nonresident
aliens. For more information on aliens see Publication 519,
Tax Guide for Aliens.
If you work for a church or a qualified church-controlled
organization (other than as a minister or member of a religious order)
that elected an exemption from social security and Medicare taxes, you
are subject to SE tax if you receive $108.28 or more in wages from the
church or organization.
However, you may qualify for an exemption from the SE tax if you
are a member of a recognized religious group. See Member of
Recognized Religious Group, later.
State or local government employee.
You are subject to SE tax if you are an employee of a state or
local government, are paid solely on a fee basis, and your services
are not covered under a federal-state social security agreement.
Foreign government or international organization employee.
You are subject to SE tax if both the following conditions are
- You are a U.S. citizen employed in the United States, Puerto
Rico, Guam, American Samoa, the Commonwealth of the Northern Mariana
Islands, or the Virgin Islands by:
- A foreign government,
- A wholly-owned instrumentality of a foreign government,
- An international organization.
- Your employer is not required to withhold social security
and Medicare taxes from your wages.
U.S. citizen or resident alien residing abroad.
If you are a self-employed U.S. citizen or resident alien living
outside the United States, in most cases you must pay SE tax. Do not
reduce your foreign earnings from self-employment by your foreign
earned income exclusion.
The United States has social security agreements with many
countries to eliminate double taxation under two social security
systems. (See Table 1.) Under these agreements, you must
generally only pay social security and Medicare taxes to the country
you live in. The country to which you must pay the tax will issue a
certificate which serves as proof of exemption from social security
tax in the other country.
Table 1. Countries With Social Security
|The following countries have
social security agreements with the United States.|
- The Netherlands
- South Korea
- The United Kingdom
For more information, contact the social security agency of the
country in which you are living, visit the United States Social
Security Administration web site at
www.ssa.gov/international, or write to:
Social Security Administration
Office of International Programs
P.O. Box 17741
Baltimore, MD 21235-7741
Are You Self-Employed?
You are self-employed if any of the following apply to you.
- You carry on a trade or business as a sole proprietor or an
- You are a member of a partnership that carries on a trade or
- You are otherwise in business for yourself.
Trade or business.
A trade or business is generally an activity carried on for a
livelihood or in good faith to make a profit. The facts and
circumstances of each case determine whether or not an activity is a
trade or business. The regularity of activities and transactions and
the production of income are important elements. You do not need to
actually make a profit to be in a trade or business as long as you
have a profit motive. You do need, however, to make ongoing efforts to
further the interests of your business.
You do not have to carry on regular full-time business activities
to be self-employed. Having a part-time business in addition to your
regular job or business may also be self-employment.
You are employed full time as an engineer at the local plant. You
fix televisions and radios during the weekends. You have your own
shop, equipment, and tools. You get your customers from advertising
and word-of-mouth. You are self-employed as the owner of a part-time
You are a sole proprietor if you own an unincorporated business by
People such as doctors, dentists, veterinarians, lawyers,
accountants, contractors, subcontractors, public stenographers, or
auctioneers who are in an independent trade, business, or profession
in which they offer their services to the general public are generally
independent contractors. However, whether these people are independent
contractors or employees depends on the facts in each case. The
general rule is that an individual is an independent contractor if the
payer has the right to control or direct only the result of the work
and not what will be done and how it will be done. The earnings of a
person who is working as an independent contractor are subject to SE
You are not an independent contractor if you perform services that
can be controlled by an employer (what will be done and how it will be
done). This applies even if you are given freedom of action. What
matters is that the employer has the legal right to control the
details of how the services are performed.
If an employer-employee relationship exists (regardless of what
the relationship is called), you are not an independent contractor and
your earnings are generally not subject to SE tax. However, your
earnings as an employee may be subject to SE tax under other rules
discussed in this section.
For more information on determining whether you are an independent
contractor or an employee, see Publication 15-A.
Guidelines for Selected Occupations
This section provides information to help you determine whether
your earnings from one of the following occupations are subject to SE
- Retired or former insurance agent.
- Fishing crew member.
- Newspaper carrier or distributor.
- Newspaper or magazine vendor.
- Notary public.
- Public official.
- Real estate agent or direct seller.
- Dealer in securities.
- Executor or administrator.
- Minister, Christian Science practitioner, or member of
- Member of recognized religious group.
- Trader in securities.
Retired Insurance Agent
Income paid by an insurance company to a retired self-employed
insurance agent based on a percentage of commissions received before
retirement is subject to SE tax. Also, renewal commissions and
deferred commissions for sales made before retirement are generally
subject to SE tax.
However, renewal commissions paid to the survivor of an insurance
agent are not subject to SE tax.
Former Insurance Agent
Termination payments you receive as a former self-employed
insurance agent from an insurance company because of services you
performed for that company are exempt from SE tax if all the following
conditions are met.
- You received payments after your agreement to perform
services for the company ended.
- You did not perform any services for the company after your
service agreement ended and before the end of the year in which you
received the payment.
- You entered into a covenant not to compete against the
company for at least a 1-year period beginning on the date your
service agreement ended.
- The amount of the payments depended primarily on policies
sold by or credited to your account during the last year of your
service agreement or the extent to which those policies remain in
force for some period after your service agreement ended, or
- The amount of the payment did not depend to any extent on
length of service or overall earnings from services performed for the
company (regardless of whether eligibility for the payments depended
on length of service).
Fishing Crew Member
If you are a member of the
crew on a boat that catches fish or other water life, your earnings
are subject to SE tax if all the following conditions apply.
- You do not get any pay for the work except your share of the
catch or a share of the proceeds from the sale of the catch, unless
the pay meets all the following conditions.
- The pay is not more than $100 per trip.
- The pay is received only if there is a minimum catch.
- The pay is solely for additional duties (such as those as
mate, engineer, or cook) for which additional cash pay is traditional
in the fishing industry.
- You get a share of the catch or a share of the proceeds from
the sale of the catch.
- Your share depends on the amount of the catch.
- The boat's operating crew normally numbers fewer than 10
individuals. (An operating crew is considered as normally made up of
fewer than 10 if the average size of the crew on trips made during the
last four calendar quarters is fewer than 10.)
You are not subject to SE tax if you are under age 18 and you
are working for your father or mother.
For more information about commercial fishing, see Publication 595.
Newspaper Carrier or Distributor
You are a direct seller and your earnings are subject to SE tax if
all the following conditions apply.
- You are in the business of delivering or distributing
newspapers or shopping news (including directly related services such
as soliciting customers and collecting receipts).
- Substantially all your pay for these services directly
relates to your sales or other output rather than to the number of
hours you work.
- You perform the services under a written contract that says
you will not be treated as an employee for federal tax
This rule applies whether or not you hire others to help you
make deliveries. It also applies whether you buy the papers from the
publisher or are paid based on the number of papers you deliver.
For more information about direct sellers, see Publication 911.
Newspaper or Magazine Vendor
If you are 18 or older and you sell newspapers or magazines, your
earnings are subject to SE tax if all the following conditions apply.
- You sell newspapers or magazines to ultimate
- You sell them at a fixed price.
- Your earnings are based on the difference between the sales
price and your cost of goods sold.
This rule applies whether or not you are guaranteed a minimum
amount of earnings. It also applies whether or not you receive credit
for unsold newspapers or magazines you return to your supplier.
Fees you receive for services you perform as a notary public are
not subject to SE tax.
Public officials generally are not subject to SE tax on what they
earn for serving in public office. This rule applies to payments
received by an elected tax collector from state funds on the basis of
a fixed percentage of the taxes collected. Public office includes any
elective or appointive office of the United States or its possessions,
the District of Columbia, a state or its political subdivisions, or a
wholly owned instrumentality of any of these.
Public officials of state or local governments are subject to SE
tax on their fees if they are paid solely on a fee basis and if their
services are eligible for, but not covered by, social security under a
Real Estate Agent or Direct Seller
If you are a licensed real estate agent or a direct seller, your
earnings may be subject to SE tax if both the following apply.
- Substantially all your pay for services as a real estate
agent or direct seller directly relates to your sales or other output
rather than to the number of hours you work.
- You perform the services under a written contract that says
you will not be treated as an employee for federal tax purposes.
For more information about direct sellers, see Publication 911.
Dealer in Securities
If you are a dealer in options or commodities, your gains and
losses from dealing or trading in section 1256 contracts (regulated
futures contracts, foreign currency contracts, nonequity options, and
dealer equity options) or property related to those contracts (such as
stock used to hedge options) are subject to SE tax. For more
information, see sections 1256 and 1402(i) of the Internal Revenue
Executor or Administrator
If you administer a deceased person's estate, your fees are subject
to SE tax if you are one of the following.
- A professional fiduciary.
- A nonprofessional fiduciary (personal representative) and
both of the following conditions apply.
- The estate includes an active trade or business in which you
- Your fees are related to the operation of that trade or
- A nonprofessional fiduciary of a single estate that requires
extensive managerial activities on your part for a long period of
time, provided these activities are enough to be considered a trade or
Report fees that are subject to SE tax on Schedule C or C-EZ
(Form 1040). If the fees are not subject to SE tax, report them on
line 21 of
Minister, Christian Science Practitioner,
or Member of Religious Order
You generally are subject to SE tax on earnings for services you
perform as a minister,
practitioner, or member of a religious order who has not taken a vow
of poverty. But you can get an exemption from SE tax on certain
earnings by filing
For more information, see Publication 517.
Revocation of exemption from SE tax.
If you previously elected the exemption from social security
coverage and SE tax, you have until April 15, 2002, to revoke this
exemption by filing
Form 2031 with the IRS. This
period is extended beyond April 15, 2002, if you get an extension to
file your 2001 return. The revocation will be effective for the year
the revocation was made (2000 or 2001) and for all later years. You
will be covered under the social security system and your earnings
will be subject to SE tax during those years. Once you revoke the
exemption, you can never again elect an exemption from SE
tax and social security coverage.
Member of religious order who has taken a vow of poverty.
If you belong to a religious order and took a vow of poverty, you
are not subject to SE tax on your earnings for performing duties
required by the order.
Member of Recognized
If you belong to a recognized religious group opposed to insurance,
you may qualify for an exemption from the SE tax. To qualify, you must
be conscientiously opposed to accepting the benefits of any public or
private insurance that makes payments because of death, disability,
old age, retirement, or medical care, or that provides services for
medical care. If you buy a retirement annuity from an insurance
company, you will not be eligible for this exemption. Religious
opposition based on group teachings is the only legal basis for the
exemption. In addition, your religious group (or division) must have
existed since December 31, 1950.
To get the exemption, you must file in triplicate
Form 4029 and waive all
social security benefits.
Trader in Securities
You are a trader in securities if you are engaged in the business
of buying and selling securities for your own account. As a trader in
securities, your gain or loss from the disposition of securities is
not subject to SE tax. However, see Dealer in Securities,
earlier, for an exception that applies to section 1256
contracts. For more information about traders in securities, see
Investment Income and Expenses.