Tax Trails - Self-Employment Income
Some kinds of income may or may not be self-employment income. The source of your income and your involvement in the activity from which the income is received will determine whether it is self-employment income reported on Schedule C (Form 1040) (.pdf), Profit or Loss From Business, and subject to self-employment tax figured on Schedule SE (Form 1040) (.pdf), Self-Employment Tax.
INTEREST - Interest is not self-employment income unless you receive it in your trade or business, such as interest on accounts receivable. If you are a dealer in securities, self-employment income includes interest received from bonds, notes, etc.
DIVIDENDS - Dividends on securities are not self-employment income unless you are a dealer in securities.
NEWSPAPER CARRIERS - The income you receive as a newspaper carrier for delivering newspapers or shopping news to customers is self-employment income if three requirements are met: (1) You are in the business of delivering or distributing newspapers or shopping news (including directly related services such as soliciting customers and collecting receipts); (2) substantially all of your pay for delivery/distribution services is directly related to sales or other output rather than the number of hours worked; and (3) the services are performed under a written contract that says you will not be treated as an employee for federal tax purposes. If you do not meet these three requirements and you are 18 years of age or older, your pay is subject to social security and Medicare tax as an employee. If you are under age 18, your pay is exempt from social security and Medicare taxes.
PUBLIC OFFICIALS - Public officials of state or local governments must pay self-employment tax on their fees if they are paid solely on a fee basis and if their services are eligible for, but are not covered by social security and Medicare taxes under a federal-state agreement. Public officials do not generally pay self-employment tax on amounts they earn for serving in public office, whether elected or appointed.
FORMER INSURANCE SALESPERSONS - When a former insurance salesperson receives termination payments, these payments are not self-employment income if all of the following conditions are met: (1) you received the payments after your agreement to perform services for the company ended, (2) 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, (3) you entered into a covenant not to compete against the company for at least 1-year beginning on the date your service agreement ended, (4) the amount of the payments depended primarily on policies sold by you 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 both, and (5) the amount of the payments is not based upon length of service or overall earnings from service performed for the company.
If you earn or receive income during the year that is not subject to withholding or you do not have enough tax withheld, you may have to pay estimated tax. If you do not pay enough tax during the year through withholding or by making estimated tax payments, you may have to pay a penalty.
For more information on different kinds of self-employment income, see Publication 334, Tax Guide for Small Business. For more information on estimated tax, refer to Chapter 2 of Publication 505, Tax Withholding and Estimated Tax.