U.S. territories have separate, autonomous income tax systems, but they do not have their own separate systems for Social Security. The IRS is responsible for ensuring that self-employed individuals who live and work in U.S. territories -- American Samoa, Guam, Puerto Rico, the Northern Mariana Islands (CNMI) or the U.S. Virgin Islands-- comply with the requirements for paying self-employment tax.
You must pay your self-employment tax to the IRS if you are self-employed (even if only on a part-time basis) and have net earnings of $400 unless you are a nonresident alien for purposes of self-employment tax, as defined below. You are self-employed if you carry on a trade or business as a sole proprietor or independent contractor, are a member of a partnership that carries on a trade or business, or are otherwise in business for yourself. The requirement to pay self-employment tax to the IRS applies whether or not you are required to file an income tax return (Form 1040 series) with the IRS, and generally fits in these two form-filing categories:
- SCHEDULE SE - If you are required to file Form 1040 with the IRS, use Schedule SE to compute self-employment tax and submit it to the IRS with your Form 1040.
- FORM 1040-SS/FORMULARIO 1040-PR - If you are not required to file Form 1040 with the IRS, file Form 1040-SS [link to Std ID 242950], U.S. Self-Employment Tax Return. Residents of Puerto Rico, can file Formulario 1040-PR [link to Std ID 244738] instead of Form 1040-SS. Formulario 1040-PR is the Spanish-language equivalent of Form 1040-SS. These forms must be filed with the U.S. Internal Revenue Service at the address shown in the instructions for Form 1040-PR and Form 1040-SS.
NOTE: Do not submit your Schedule SE, Form 1040-SS, Formulario 1040-PR or self-employment tax payments to your local U.S. territory tax agency.
Additional Medicare Tax If you are required to pay Additional Medicare Tax on your self-employment income, attach Form 8959 to Form 1040, Form 1040-SS, or Form 1040-PR, as applicable.
You cannot include the Additional Medicare Tax as a deductible part of your self-employment tax.
Nonresident alien for purposes of self-employment tax A nonresident alien for purposes of self-employment tax is an individual who
- is a nonresident alien of the United States, and
- is not a resident of American Samoa, Guam, Puerto Rico, the Northern Mariana Islands (CNMI) or the U.S. Virgin Islands.
Benefits of paying self-employment tax Your payments of self-employment tax contribute to your coverage under the U.S. social security system. Social security coverage provides you with old age, survivor, and disability benefits and hospital insurance. In order for you to receive credit for purposes of calculating your future social security benefits, payments must be received no later than three years, three months and 15 days after the year for which they apply – for example, payments for 2014 self-employment tax received after April 15, 2018, will not be credited to your account for purposes of calculating your future social security benefits.
Figuring net self-employment income for self-employment tax Some of the deductions that are allowable when calculating net self-employment income for the territory are not allowable when calculating net self-employment tax reported to the IRS. For example, there are operating expenses that are deductible on returns filed with Puerto Rico’s tax agency which are not allowable in computing net self-employment income on Form 1040-SS/1040-PR. The Puerto Rico return may allow the deduction of one-half of self-employment tax, self-employed health insurance and contributions to Self-Employed Pension (SEP) plans as business operating expenses. Although these expenses are allowed as adjustments to gross income on Form 1040, they are not deductible when computing net self-employment income on Schedule C or F.
Please refer to the Form 1040-PR/Form 1040-SS instructions for more information about the expenses allowed in determining net income from self-employment for U.S. self-employment tax purposes.
Notary income Fees for services you provide as a notary public are not subject to self-employment tax. However, all of your other self-employment income is subject to self-employment tax.
Example: X is a self-employed attorney and also a notary public. Only the income that X received for services performed as a notary is not subject to self-employment tax.
- Persons Employed In U.S. Possessions – Federal Income Tax
- Persons Employed in U.S. Possessions - Social Security Tax (FICA)
- Persons Employed in U.S. Possessions – Unemployment Tax (FUTA)
- Publication 570, Tax Guide for Individuals With Income From U.S. Possession