- 25.6.15.1 Self Employment Contributions Act (SECA) Overview
- 25.6.15.2 What is SECA
- 25.6.15.3 SECA Research
- 25.6.15.4 SECA Procedures
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This section provides guidance in identifying and resolving SECA cases.
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Generally, self employment contributions act (SECA) is a tax imposed on business income of $434 or more unless the taxpayer is:
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A public official not paid with fees
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A non-resident alien
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An employee with limited exceptions, such as a U.S. citizen working in the U.S. as an employee of a foreign government or an international organization
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A member of certain religious sects
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A minister who has an approved Form 4361
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SECA is computed on Schedule SE. It furnishes the Social Security Administration (SSA) with a date to compute Social Security (SS) benefits. It must be paid on net self-employment income over $434, regardless of the taxpayers age, even if he/she is receiving SS benefits.
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Self Employment Income (SEI) is reported on Schedule C, E, F or on the line for other income on Form 1040. Any change in self-employment income may change the self-employment tax amount.
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Examination must review all cases where a taxpayer reports additional income and indicates more income tax is due but fails to compute SECA tax. Refer to IRM 21.6.4,Tax Computation/Tax Period Changes for tolerances.
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Each taxpayer reports his/her total self-employment income on his/her own Self Employment (SE) Schedule. Each spouses are required to file separate Schedules SE. The computed self-employment tax (SET) is added to the taxpayer's regular tax on Form 1040.
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To handle SECA cases you may need to refer to the following Internal Revenue Manuals (IRM's) and Internal Revenue Code (IRC) Sections:
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IRM 21.5.1,General Adjustments
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IRM 21.6.4,Tax Computation/Tax Period Changes
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IRC Section 1401–1403,Self Employment Tax
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IRC Section 6017,Self Employment Tax Returns
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IRM 4.23, Employment Tax Handbook.
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When making adjustments to the Primary Self Employment Income (PSEI) or the Secondary Self Employment Income (SSEI), TC 878 and 879 must correspond with the information previously provided. Do not adjust the PSEI or SSEI below zero. If Self Employment Income (SEI) is reduced to less than $434 for either taxpayer, you must reduce PSEI and/or SSEI to zero and assess no tax. Notify the taxpayer of any changes.
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If you receive a SECA Tax case and the assessment statute expiration date (ASED) has expired:
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Check for conditions which might extend the ASED beyond the 3 year statute expiration date. If the ASED cannot be extended, do not assess additional tax. Stamp the amended return "Statute Expired" and input TC 290 for zero amount.
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If a credit balance module reflects a payment received on or before the ASED that is attributable to an adjustment for which the ASED has passed , transfer the barred assessment credit to the Excess Collection File (XSF) or Unidentified Remittance File (URF) as applicable. You must input a Transaction Code (TC) 971 with Action Code (AC) 296. No other research action is required. The payment may be retained even though the liability it pays can no longer be assessed. Do not use the credit to pay other debit conditions.
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When a payment is made for Income Tax (IT) and/or SECA Tax and the payment was received after the Assessment Statute Expiration Date (ASED), send a letter to the taxpayer stating that we cannot legally assess the tax because the statute for assessment of tax has expired. Also, advise the taxpayer that a claim for credit or refund must be filed within 2 years from the date of payment to recover the amount. Transfer the payment to XSF and input TC 971 AC 296.
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When a payment is made for Income Tax (IT) and/or SECA, and the payment was received after the ASED, advise the taxpayer an assessment cannot be made but a refund can be obtained providing a claim is filed within 2 years from the date of payment.
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Do not assess amended returns reporting SECA tax received after the ASED, which runs from the filing of the original return. If the IRS fails to make assessment on the original return or amended return before the ASED passes, do not assess any amount on either return. Instead, input TC 290 for zero amount, use Blocking Series 18 and reference numbers as appropriate. Transfer any remittance received to XSF or URF, as stated above in 2(b) and 2(c). Report the amount of the unassessed tax from the original return as a barred assessment.
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Do not assess Form SSA 7000 information without a statutory notice of deficiency being sent prior to the statute date. Do not make an assessment of tax if Examination did not issue a Statutory Notice Of Deficiency, and stamped the Form SSA 7000 "Survey" or "Accepted As Filed." Instead, use TC 290 for zero amount and blocking series 18 to associate the case with the original return.
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Do not make adjustments reported on Form SSA-7000 after the ASED unless accompanied by a taxpayer's claim that was filed before the ASED.
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If the taxpayer files an amended return after the ASED expires to increase SE Tax, you can not assess the tax as stated above. However, you can make an adjustment to increase the Self-employment Income. The Social Security Administration may use this information when computing the taxpayer's Social Security payment amount.
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Section 218 of the Social Security Act provides that the Social Security Administration and a State may enter into agreements to provide coverage for state and local employees. IRC Section 6511(d)(5) provides a special period of limitations for claims for refund or credit of overpaid self-employment tax attributable to such agreements.
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Claims are timely filed if they are filed on, or before, the last day of the second year after the calendar year in which the agreement was made.
Example:
Taxpayer paid SECA Tax for tax years 1993– 1996. An agreement was signed June 12, 1997. The taxpayer has until December 31, 1999, to file claims for tax years 1993– 1996.
Example:
Taxpayer paid SECA Tax for tax years 1994–1997. An agreement was signed June 12, 1998. Since December 31, 2000, was a Sunday and January 1, 2001, was a legal holiday. A claim filed on January 2, 2001, for tax years 1994–1997 is considered to be timely filed.