U.S. Individual Income Tax Return

Department of the Treasury
Internal Revenue Service

2018 Instructions for Schedule SE (Form 1040)
Self-Employment
Tax
Section references are to the Internal
Revenue Code unless otherwise noted.

Future Developments
For the latest information about developments related to Schedule SE (Form
1040) and its instructions, such as legislation enacted after they were published,
go to IRS.gov/ScheduleSE.

What's New
Maximum income subject to social security tax. For 2018, the maximum
amount of self-employment income subject to social security tax is $128,400.

General
Instructions
Who Must File Schedule SE
You must file Schedule SE if:
• The amount on line 4 of Short
Schedule SE or line 4c of Long Schedule SE is $400 or more, or
• You had church employee income
of $108.28 or more. (Income from services you performed as a minister, member of a religious order, or Christian Science practitioner isn't church employee
income.) See Employees of Churches
and Church Organizations.
Exception to filing Schedule SE. If
you filed Form 4029 or Form 4361 and
received IRS approval, you may not
need to file Schedule SE. See Ministers,
Members of Religious Orders, and
Christian Science Practitioners and
Members of Certain Religious Sects for
information on how to report your
self-employment earnings.

Use Schedule SE (Form 1040) to figure the tax due on net earnings from self-employment. The Social Security Administration uses the information from Schedule SE to
figure your benefits under the social security program. This tax applies no matter how
old you are and even if you are already getting social security or Medicare benefits.
Additional information. See Pub. 225 or Pub. 334.
Even if you had a loss or a

TIP small amount of income from
self-employment, it may be to
your benefit to file Schedule SE and use
either "optional method" in Part II of
Long Schedule SE (discussed later).

Who Must Pay
Self-Employment (SE) Tax
Self-Employed Persons
You must pay SE tax if you had net
earnings of $400 or more as a self-employed person. If you are in business
(farm or nonfarm) for yourself, you are
self-employed.
You also must pay SE tax on your
share of certain partnership income and
your guaranteed payments. See Partnership Income or Loss, later.
Employees of Churches and
Church Organizations
If you had church employee income of
$108.28 or more, you must pay SE tax.
Church employee income is wages you
received as an employee (other than as a
minister, a member of a religious order,
or a Christian Science practitioner) of a
church or qualified church-controlled organization that has a certificate in effect
electing an exemption from employer
social security and Medicare taxes.
Ministers, Members of Religious
Orders, and Christian Science
Practitioners
In most cases, you must pay SE tax on
salaries and other income for services
you performed as a minister, a member
of a religious order who hasn’t taken a
vow of poverty, or a Christian Science
practitioner. But if you filed Form 4361
and received IRS approval, you will be
exempt from paying SE tax on those net
SE-1

Nov 14, 2018

Cat. No. 24334P

earnings. If you had no other income
subject to SE tax, enter “Exempt—Form
4361” on Schedule 4 (Form 1040),
line 57, or Form 1040NR, line 55. However, if you had other earnings of $400
or more subject to SE tax, see line A at
the top of Long Schedule SE.
If you have ever filed Form
2031 to elect social security
CAUTION coverage on your earnings as a
minister, you can’t revoke that election.

!

If you must pay SE tax, include this
income on either Short or Long Schedule SE, line 2. But don’t report it on
Long Schedule SE, line 5a; it isn’t considered church employee income. Also,
include on line 2:
• The rental value of a home or an
allowance for a home furnished to you
(including payments for utilities), and
• The value of meals and lodging
provided to you, your spouse, and your
dependents for your employer's convenience.
However, don’t include on line 2:
• Retirement benefits you received
from a church plan after retirement, or
• The rental value of a home or an
allowance for a home furnished to you
(including payments for utilities) after
retirement.
If you were a duly ordained minister
who was an employee of a church and
you must pay SE tax, the unreimbursed
business expenses that you incurred as a
church employee are not deductible as
an itemized deduction for income tax
purposes. However, when figuring SE
tax, subtract on line 2 the allowable expenses from your self-employment earnings and attach an explanation.
If you were a U.S. citizen or resident
alien serving outside the United States
as a minister or member of a religious
order and you must pay SE tax, you

can’t reduce your net earnings by the
foreign earned income exclusion or the
foreign housing exclusion or deduction.
See Pub. 517 for details.
Members of Certain Religious
Sects
If you have conscientious objections to
social security insurance because of
your membership in and belief in the
teachings of a religious sect recognized
as being in existence at all times since
December 31, 1950, and which has provided a reasonable level of living for its
dependent members, you are exempt
from SE tax if you received IRS approval by filing Form 4029. In this case,
don’t file Schedule SE. Instead, enter
“Exempt—Form 4029” on Schedule 4
(Form 1040), line 57, or Form 1040NR,
line 55. See Pub. 517 for details.
U.S. Citizens Employed by
Foreign Governments or
International Organizations
You must pay SE tax on income you
earned as a U.S. citizen employed by a
foreign government (or, in certain cases,
by a wholly owned instrumentality of a
foreign government or an international
organization under the International Organizations Immunities Act) for services
performed in the United States, Puerto
Rico, Guam, American Samoa, the
Commonwealth of the Northern Mariana
Islands, or the U.S. Virgin Islands. Report income from this employment on
either Short or Long Schedule SE,
line 2. If you performed services elsewhere as an employee of a foreign government or an international organization,
those earnings are exempt from SE tax.
Exception—Dual citizens. A person
with dual U.S.-foreign citizenship generally is considered to be a U.S. citizen for
social security purposes. However, if
you are a U.S. citizen and also a citizen
of a country with which the United
States has a bilateral social security
agreement, other than Canada or Italy,
your work for the government of that
foreign country is always exempt from
U.S. social security taxes. For further information about these agreements, see
the exception shown in the next section.

U.S. Citizens or Resident Aliens
Living Outside the United States
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. You can’t reduce your foreign
earnings from self-employment by your
foreign earned income exclusion.
Exception. The United States has social
security agreements with many countries
to eliminate dual taxes under two social
security systems. Under these agreements, you generally must pay social security and Medicare taxes to only the
country in which you live.
The United States now has social security agreements with the following
countries: Australia, Austria, Belgium,
Brazil, Canada, Chile, Czech Republic,
Denmark, Finland, France, Germany,
Greece, Hungary, Ireland, Italy, Japan,
Luxembourg, the Netherlands, Norway,
Poland, Portugal, South Korea, Spain,
Slovak Republic, Sweden, Switzerland,
the United Kingdom, and Uruguay.
If you have questions about international social security agreements, or to
see if any additional agreements have
been entered into, you can visit the Social Security Administration's (SSA's)
International Programs website at
SSA.gov/international. The website also
provides contact information for questions about benefits and the agreements.
If your self-employment income is
exempt from SE tax, you should get a
statement from the appropriate agency
of the foreign country verifying that
your self-employment income is subject
to social security coverage in that country. If the foreign country won't issue the
statement, contact the SSA Office of International Programs. Don’t complete
Schedule SE. Instead, attach a copy of
the statement to Form 1040 and enter
“Exempt, see attached statement” on
Schedule 4 (Form 1040), line 57.
Nonresident Alien
If you are a self-employed nonresident
alien living in the United States, you
must pay SE tax if an international social security agreement in effect determines that you are covered under the
U.S. social security system. See Exception under U.S. Citizens or Resident Aliens Living Outside the United States,
earlier, for information about interna-

SE-2

tional social security agreements. If your
self-employment income is subject to
SE tax, complete Schedule SE and file it
with your Form 1040NR.
Chapter 11 Bankruptcy Cases
While you are a debtor in a chapter 11
bankruptcy case, your net profit or loss
from self-employment (for example,
from Schedule C or Schedule F) won't
be included in your Form 1040 income.
Instead, it will be included on the income tax return (Form 1041) of the
bankruptcy estate. However, you (not
the bankruptcy estate) are responsible
for paying SE tax on your net earnings
from self-employment.
Enter on the dotted line to the left of
Schedule SE, line 3, “Chap. 11 bankruptcy income” and the amount of your
net profit or (loss). Combine that
amount with the total of lines 1a, 1b, and
2 (if any) and enter the result on line 3.
For other reporting requirements, see
Chapter 11 Bankruptcy Cases in the Instructions for Form 1040.

More Than One Business
If you had two or more businesses subject to self-employment tax, your net
earnings from self-employment are the
combined net earnings from all of your
businesses. If you had a loss in one business, it reduces the income from another. Figure the combined SE tax on one
Schedule SE.

Joint Returns
Show the name of the spouse with
self-employment income on Schedule SE. If both spouses have self-employment income, each must file a separate Schedule SE. However, if one
spouse qualifies to use Short Schedule SE (front of form) and the other
must use Long Schedule SE (back of
form), both can use the same form. One
spouse should complete the front and the
other the back.
Include the total profits or losses
from all businesses on Form 1040. Enter
the combined SE tax on Schedule 4
(Form 1040), line 57.

Community Income
If any of the income from a business (including farming) is community income,
then the income and deductions are reported as follows.

• If only one spouse participates in
the business, all of the income from that
business is the self-employment earnings of the spouse who carried on the
business.
• If both spouses participate, the income and deductions are allocated to the
spouses based on their distributive
shares.
• If either or both spouses are partners in a partnership, see Partnership Income or Loss, later.
• If both spouses elected to treat the
business as a qualifying joint venture,
see Qualified Joint Ventures, later.
Married filing separately. If you and
your spouse had community income and
file separate returns, attach Schedule SE
to the return of each spouse with
self-employment earnings under the
rules described earlier. Also attach
Schedule(s) C, C-EZ, or F (showing the
spouse's share of community income
and expenses) to the return of each
spouse.
Spouse who carried on the business.
If you are the only spouse who carried
on the business, you must include on
Schedule SE, line 3, the net profit or
(loss) reported on the other spouse's
Schedule C, C-EZ, or F (except in those
cases described later under Income and
Losses Not Included in Net Earnings
From Self-Employment). Enter on the
dotted line to the left of Schedule SE,
line 3, “Community income taxed to
spouse” and the amount of any net profit
or (loss) allocated to your spouse as
community income. Combine that
amount with the total of lines 1a, 1b, and
2. Enter the result on line 3.
Spouse who didn’t carry on the busi­
ness. If you aren’t the spouse who carried on the business and you had no other income subject to SE tax, enter “Exempt community income” on Schedule 4
(Form 1040), line 57, or Form 1040NR,
line 55. Don’t file Schedule SE.
But if you have $400 or more of other earnings subject to SE tax, you must
file Schedule SE. Include on Schedule SE, line 1a or 2, the net profit or
(loss) from Schedule(s) C, C-EZ, or F
allocated to you as community income.
On the dotted line to the left of Schedule SE, line 3, enter “Exempt community income” and the allocated amount.

Figure the amount to enter on line 3 as
follows.
• If the allocated amount is a net
profit, subtract it from the total of lines
1a, 1b, and 2.
• If the allocated amount is a loss,
treat it as a positive amount and add it to
the total of lines 1a, 1b, and 2.
Community income included on
Schedule(s) C, C-EZ, or F must
CAUTION be divided for income tax purposes based on the community property
laws of your state. See Pub. 555 for
more information.

!

Qualified Joint Ventures
If you and your spouse materially participate as the only members of a jointly
owned and operated business, and you
file a joint return for the tax year, you
can make a joint election to be taxed as
a qualified joint venture instead of a
partnership. For information on what it
means to materially participate, see Material participation in the Instructions
for Schedule C.
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. Each of you must file
a separate Schedule C, C-EZ, or F. On
each line of your separate Schedule C,
C-EZ, or F, you must enter your share of
the applicable income, deduction, or
loss. Each of you also must file a separate Schedule SE to pay SE tax, as applicable.
For more information on qualified
joint ventures, go to IRS.gov/QJV.
Rental real estate business. If you and
your spouse make the election to be
taxed as a qualified joint venture for
your rental real estate business, the income generally isn’t subject to SE tax.
To indicate that election, be sure to
check the “QJV” box in Part I, line 2, of
each Schedule E that the rental property
is listed on. Don’t file Schedule SE unless you have other income subject to
SE tax. For an exception to this income
not being subject to SE tax, see item 3
under Other Income and Losses Included in Net Earnings From Self-Employment, later.
If you and your spouse make the
election for a farm rental business that

SE-3

you report on Form 4835, Farm Rental
Income and Expenses, each of you must
file a separate Form 4835 to report your
share of farm rental income based on
crops or livestock produced by the tenant. Don’t file Schedule SE unless you
have other income subject to the SE tax.

Fiscal Year Filers
If your tax year is a fiscal year, use the
tax rate and annual earnings limit that
apply at the time the fiscal year begins.
Don’t prorate the tax or annual earnings
limit for a fiscal year that overlaps the
date of a change in the tax or annual
earnings limit.

Line Instructions
Read the flowchart on page 1 of Schedule SE to see if you can use Section A—Short Schedule SE, or if you
must use Section B—Long Schedule SE.
For either section, you will need to figure your net earnings from self-employment. To find out what is included as net
earnings from self-employment, see Net
Earnings From Self-Employment, later.
Enter all negative amounts in

TIP parentheses.

You Have Only Church
Employee Income Subject
to SE Tax
If your only income subject to SE tax is
church employee income (described earlier under Employees of Churches and
Church Organizations), skip lines 1
through 4b. Enter -0- on line 4c and go
to line 5a.
Note. Income from services you perform as a minister, a member of a religious order, or a Christian Science practitioner isn’t church employee income.

Line 1b (Short or Long
Schedule SE)
If you were receiving social security retirement or social security disability
benefits at the time you received your
Conservation Reserve Program (CRP)
payment(s), enter the amount of your
taxable CRP payment(s) on line 1b.
These payments are included on Schedule F, line 4b, or listed on Schedule K-1
(Form 1065), box 20, code Z (if a 2017

Schedule K-1) or code AH (if a 2018
Schedule K-1).

Line 4 (Short Schedule SE)
If line 4 is less than $400 and you have
an amount on line 1b, combine lines 1a
and 2.
• If the total of lines 1a and 2 is
$434 or more, file Schedule SE (completed through line 4) with your tax return. Enter -0- on Schedule 4 (Form
1040), line 57, or Form 1040NR,
line 55.
• If the total of lines 1a and 2 is less
than $434, don’t file Schedule SE unless you choose to use an optional method for figuring your SE tax.

Lines 4a Through 4c (Long
Schedule SE)
If both lines 4a and 4c are less than $400
and you have an amount on line 1b,
combine lines 1a and 2.
• If the total of lines 1a and 2 is
$434 or more, file Schedule SE (completed through line 4c) with your tax return. Enter -0- on Schedule 4 (Form
1040), line 57,* or Form 1040NR,
line 55.*
• If the total of lines 1a and 2 is less
than $434, don’t file Schedule SE unless you choose to use an optional method to figure your SE tax.
*If you also have church employee income (described earlier under Employees of Churches and Church Organizations), also complete lines 5a and 5b.
Complete the rest of Schedule SE, as appropriate.

Additional Medicare Tax
A 0.9% Additional Medicare Tax may
apply to you if the total amount from
line 4 (Short Schedule SE) or line 6
(Long Schedule SE) of all your Schedules SE exceeds one of the following
threshold amounts (based on your filing
status).
• Married filing jointly—$250,000
• Married filing
separately—$125,000
• Single, Head of household, or
Qualifying widow(er)—$200,000
If you have both wages and self-employment income, the threshold amount
for applying the Additional Medicare
Tax on the self-employment income is
reduced (but not below zero) by the

amount of wages subject to Additional
Medicare Tax.
Use Form 8959, Additional Medicare
Tax, to figure this tax. For more information, see the Instructions for Form
8959, or go to IRS.gov/ADMT.

Net Earnings From
Self-Employment
In most cases, net earnings include your
net profit from a farm or nonfarm business.

Partnership Income or Loss
If you were a general or limited partner
in a partnership, include on line 1a or
line 2, whichever applies, the amount of
net earnings from self-employment from
Schedule K-1 (Form 1065), box 14,
code A, and Schedule K-1 (Form
1065-B), box 9, code J1. General partners should reduce this amount by certain expenses before entering it on
Schedule SE. See your Schedule K-1 instructions. If you reduce the amount you
enter on Schedule SE, you must attach
an explanation. Limited partners should
include only guaranteed payments for
services actually rendered to or on behalf of the partnership.
If a partner died and the partnership
continued, include in self-employment
income the deceased's distributive share
of the partnership's ordinary income or
loss through the end of the month in
which he or she died. See section
1402(f).
If you were married and both you and
your spouse were partners in a partnership, each of you must report your net
earnings from self-employment from the
partnership. Each of you must file a separate Schedule SE and report the partnership income or loss on Schedule E
(Form 1040), Part II, for income tax purposes. If only one of you was a partner
in a partnership, the spouse who was the
partner must report his or her net earnings from self-employment from the
partnership.
Community income. Your own distributive share of partnership income is included in figuring your net earnings
from self-employment. Unlike the division of that income between spouses for
figuring income tax, no part of your
share can be included in figuring your

SE-4

spouse's net earnings from self-employment.

Share Farming
You are considered self-employed if you
produce crops or livestock on someone
else's land for a share of the crops or
livestock produced (or a share of the
proceeds from the sale of them). This
applies even if you paid another person
(an agent) to do the actual work or management for you. Report your net earnings for income tax purposes on Schedule F (Form 1040) and for SE tax purposes on Schedule SE. See Pub. 225 for
details.

Other Income and Losses
Included in Net Earnings
From Self-Employment
1. Rental income from a farm if, as
landlord, you materially participated in
the production or management of the
production of farm products on this
land. This income is farm earnings. To
determine whether you materially participated in farm management or production, don’t consider the activities of
any agent who acted for you. The material participation tests for landlords are
explained in Pub. 225.
2. Cash or a payment-in-kind from
the Department of Agriculture for participating in a land diversion program.
3. Payments for the use of rooms or
other space when you also provided substantial services for the convenience of
your tenants. Examples are hotel rooms,
boarding houses, tourist camps or
homes, trailer parks, parking lots, warehouses, and storage garages. See Pub.
334 for more information.
4. Income from the retail sale of
newspapers and magazines if you were
age 18 or older and kept the profits.
5. Income you receive as a direct
seller. Newspaper carriers or distributors
of any age are direct sellers if certain
conditions apply. See Pub. 334 for details.
6. Amounts received by current or
former self-employed insurance agents
and salespersons that are:
a. Paid after retirement but figured
as a percentage of commissions received
from the paying company before retirement,

b. Renewal commissions, or
c. Deferred commissions paid after
retirement for sales made before retirement.
However, certain termination payments received by former insurance
salespersons aren’t included in net earnings from self-employment (as explained in item 10 under Income and
Losses Not Included in Net Earnings
From Self-Employment).
7. Income of certain crew members
of fishing vessels with crews of normally fewer than 10 people. See Pub. 334
for details.
8. Fees as a state or local government employee if you were paid only on
a fee basis and the job wasn’t covered
under a federal-state social security coverage agreement.
9. Interest received in the course of
any trade or business, such as interest on
notes or accounts receivable.
10. Fees and other payments received
by you for services as a director of a
corporation.
11. Recapture amounts under sections
179 and 280F that you included in gross
income because the business use of the
property dropped to 50% or less. Don’t
include amounts you recaptured on the
disposition of property. See Form 4797.
12. Generally, fees you received as a
professional fiduciary. This also may apply to fees paid to you as a nonprofessional fiduciary if the fees relate to active participation in the operation of the
estate's business, or the management of
an estate that required extensive management activities over a long period of
time.
13. Gain or loss from section 1256
contracts or related property by an options or commodities dealer in the normal course of dealing in or trading section 1256 contracts.

Income and Losses Not
Included in Net Earnings
From Self-Employment
1. Salaries, fees, and other income
subject to social security or Medicare
tax that you received for performing
services as an employee, including services performed as an employee under the
railroad retirement system. This includes
services performed as a public official

(except as a fee basis government employee as explained in item 8 under Other Income and Losses Included in Net
Earnings From Self-Employment, earlier).
2. Fees received for services performed as a notary public. If you had no
other income subject to SE tax, enter
“Exempt—Notary” on Schedule 4
(Form 1040), line 57. Don’t file Schedule SE. However, if you had other earnings of $400 or more subject to SE tax,
enter “Exempt—Notary” and the
amount of your net profit as a notary
public from Schedule C or Schedule C-EZ on the dotted line to the left of
Schedule SE, line 3. Subtract that
amount from the total of lines 1a, 1b,
and 2, and enter the result on line 3.
3. Income you received as a retired
partner under a written partnership plan
that provides for lifelong periodic retirement payments if you had no other interest in the partnership and didn’t perform
services for it during the year.
4. Income from real estate rentals if
you didn’t receive the income in the
course of a trade or business as a real estate dealer. Report this income on
Schedule E.
5. Income from farm rentals (including rentals paid in crop shares) if, as
landlord, you didn’t materially participate in the production or management of
the production of farm products on the
land. See Pub. 225 for details. Report
this income on Form 4835. Use two
Forms 4835 if you and your spouse
made an election to be taxed as a qualified joint venture.
6. Payments you receive from the
Conservation Reserve Program if you
are receiving social security benefits for
retirement or disability. Deduct these
payments on line 1b of Schedule SE.
7. Dividends on shares of stock and
interest on bonds, notes, or other evidence of indebtedness issued with interest coupons or in registered form by any
corporation (including those issued by a
government or its political subdivision),
if you didn’t receive the income in the
course of your trade or business as a
dealer in stocks or securities.
8. Gain or loss from:
a. The sale or exchange of a capital
asset;

SE-5

b. The sale, exchange, involuntary
conversion, or other disposition of property unless the property is stock in trade
or other property that would be includible in inventory, or held primarily for
sale to customers in the ordinary course
of the business; or
c. Certain transactions in timber,
coal, or domestic iron ore.
9. Net operating losses from other
years.
10. Termination payments you received as a former insurance salesperson
if all of the following conditions are
met.
a. The payment was received from
an insurance company because of services you performed as an insurance
salesperson for the company.
b. The payment was received after
termination of your agreement to perform services for the company.
c. You didn’t perform any services
for the company after termination and
before the end of the year in which you
received the payment.
d. You entered into a covenant not
to compete against the company for at
least a 1-year period beginning on the
date of termination.
e. The amount of the payment depended primarily on policies sold by or
credited to your account during the last
year of the agreement, or the extent to
which those policies remain in force for
some period after termination, or both.
f. The amount of the payment didn’t
depend to any extent on length of service or overall earnings from services
performed for the company (regardless
of whether eligibility for the payment
depended on length of service).

Statutory Employee Income
If you were a statutory employee, don’t
include the net profit or (loss) from
Schedule C, line 31 (or the net profit
from Schedule C-EZ, line 3), on Short
or Long Schedule SE, line 2. But if you
file Long Schedule SE, be sure to include statutory employee social security
wages and tips from Form W-2 on
line 8a.

Optional Methods
How the Optional Methods Can
Help You
Social security coverage. The optional
methods may give you credit toward
your social security coverage even
though you have a loss or a small
amount of income from self-employment.
Credits affected by earned income.
Using the optional methods may qualify
you to claim the earned income credit
(EIC), additional child tax credit
(ACTC), or child and dependent care
credit or give you a larger credit if your
net earnings from self-employment (determined without using the optional
methods) are less than $5,280. Figure
the EIC, ACTC, and child and dependent care credit with and without using
the optional methods to see if the optional methods will benefit you.
Self-employed health insurance deduction. The optional methods of computing net earnings from self-employment may be used to figure your
self-employed health insurance deduction.
Other items affected by AGI. Using
the optional methods may decrease your
adjusted gross income (AGI), which
may affect your eligibility for credits,
deductions, or other items that are subject to an AGI limit. Figure your AGI
with and without using the optional
methods to see if the optional methods
will benefit you.
Using the optional methods
may give you the benefits deCAUTION scribed above, but they also
may increase your SE tax.

!

Changing Your Method
You can change the method used to figure your net earnings from self-employment after you file your return. That is,

you can change from the regular to the
optional method or from the optional to
the regular method. To do this, file Form
1040X.
Farm Optional Method
You may use this method to figure your
net earnings from farm self-employment
if your gross farm income was $7,920 or
less or your net farm profits were less
than $5,717. Net farm profits are:
• The total of the amounts from
Schedule F (Form 1040), line 34, and
Schedule K-1 (Form 1065), box 14,
code A, minus
• The amount you would have entered on Schedule SE, line 1b, had you
not used the optional method.
There is no limit on how many years
you can use this method.
Under this method, report in Part II,
line 15, two-thirds of your gross farm income, up to $5,280, as your net earnings. This method can increase or decrease your net earnings from farm
self-employment even if the farming
business had a loss.
For a farm partnership, figure your
share of gross income based on the partnership agreement. With guaranteed
payments, your share of the partnership's
gross income is your guaranteed payments plus your share of the gross income after it is reduced by all guaranteed payments made by the partnership.
If you were a limited partner, include
only guaranteed payments for services
you actually rendered to or on behalf of
the partnership.
Nonfarm Optional Method
You may be able to use this method to
figure your net earnings from nonfarm
self-employment if your net nonfarm
profits were less than $5,717 and also
less than 72.189% of your gross non-

SE-6

farm income. Net nonfarm profits are
the total of the amounts from:
• Schedule C (Form 1040), line 31;
• Schedule C-EZ (Form 1040),
line 3;
• Schedule K-1 (Form 1065),
box 14, code A (from other than farm
partnerships); and
• Schedule K-1 (Form 1065-B),
box 9, code J1.
To use this method, you also must be
regularly self-employed. You meet this
requirement if your actual net earnings
from self-employment were $400 or
more in 2 of the 3 years before the year
you use the nonfarm optional method.
The net earnings of $400 or more could
be from either farm or nonfarm earnings
or both. The net earnings include your
distributive share of partnership income
or loss subject to SE tax.
You can use the nonfarm optional
method to figure your earnings from
self-employment for only 5 years. The 5
years don’t have to be consecutive.
Under this method, report in Part II,
line 17, two-thirds of your gross nonfarm income, up to the amount on
line 16, as your net earnings. But you
can’t report less than your actual net
earnings from nonfarm self-employment.
Figure your share of gross income
from a nonfarm partnership in the same
manner as a farm partnership. See Farm
Optional Method for details.
Using Both Optional Methods
If you can use both methods, you can report less than your total actual net earnings from farm and nonfarm self-employment, but you can’t report less than
your actual net earnings from nonfarm
self-employment alone.
If you use both methods to figure net
earnings, you can’t report more than
$5,280 of net earnings from self-employment.