Small business tax help website
 

Net Earnings from Self Employment

What net earnings from self employment are subject to tax?

The net self employment income subject to self employment tax is called net earnings from self employment. You must have $400 or more of net earnings from self employment to be subject to the tax.

Net earnings from self employment worksheet

For this purpose, net earnings are figured on line 4 of Schedule SE, Section A or line 6 of Schedule SE, Section B.

If your net earnings are less than $400, you do not have to file Schedule SE or pay the tax. unless you performed services for a church as an employee and received income of $108.28 or more.

 
Ways to figure out net earnings from self employment

There are three ways to figure out net earnings from self employment:

  1. the regular method

  2. the nonfarm optional method, and

  3. the farm optional method

You must use the regular method unless you are eligible to use one or both of the optional methods. The optional methods allow you to continue paying self employment tax for your social security coverage when your net profit for the year is small or your have a loss.

You can generally use the optional methods when you have a loss or a small amount of net income from self employment and any one of the following applies:

  • You want to receive credit for social security benefit coverage

  • You incurred child or dependent care expenses for which you could claim a credit (this method will increase your earned income, which could increase your credit)

  • You are entitled to the earned income credit (this method will increase your earned income, which could increase your credit)