Self-employment income is income that arises from the performance of personal services, but which cannot be classified as wages because an employer-employee relationship does not exist between the payer and the payee. The Internal Revenue Code imposes the self-employment tax on the self-employment income of any U.S. citizen or resident alien who has such self-employment income.
The Code does not impose the self-employment tax on the self-employment income of a nonresident alien, unless the self-employment tax liability is imposed under the terms of a Totalization Agreement. However, once an alien individual becomes a resident alien under the residency rules of the Code, he/she then becomes liable for self-employment taxes under the same conditions as a U.S. citizen or resident alien.
In certain cases, compensation for personal services is not considered wages for the purposes of Social Security and Medicare tax withholding. For U.S. citizens who are employed by a foreign government or an international organization, the income paid for such services is reportable as self-employment income and is subject to self-employment tax to the extent that such services are performed within the United States, even though an employer-employee relationship may exist between the payer and the payee of the income.
- Social Security Tax / Medicare Tax and Self-Employment
Internal Revenue Code Sections 1402(b) and 1402 (c)(2)(C) and the Regulations thereunder.
Internal Revenue Code Section 3121 (b)(11), (b)(12), and (b)(15) and the Regulations thereunder.
Service Center Advice SCA 199932003, August 13, 1999
Field Service Advice 2000 FSA LEXIS 239, REFERENCE: CC:EBEO:TR-45-2115-95, Br2:AGKelley, September 29, 2000
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