2020 Instructions for Schedule SE Use Schedule SE (Form 1040) to Figure the Tax Due on Net Earnings from Self-Employ- Self-Employment Ment

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Department of the Treasury Internal Revenue Service 2020 Instructions for Schedule SE Use Schedule SE (Form 1040) to figure the tax due on net earnings from self-employ- Self-Employment ment. The Social Security Administration uses the information from Schedule SE to figure your benefits under the social security program. This tax applies no matter how Tax old you are and even if you are already getting social security or Medicare benefits. Additional information. See Pub. 225 or Pub. 334.

Section references are to the Internal • The amount on line 4c of Sched- received as an employee (other than as a Revenue Code unless otherwise noted. ule SE is $400 or more, or minister, a member of a religious order, • You had church employee income or a Christian Science practitioner) of a Future Developments of $108.28 or more. (Income from serv- church or qualified church-controlled or- For the latest information about devel- ices you performed as a minister, mem- ganization that has a certificate in effect opments related to Schedule SE (Form ber of a religious order, or Christian Sci- electing an exemption from employer 1040) and its instructions, such as legis- ence practitioner isn't church employee social security and Medicare taxes. lation enacted after they were published, income.) See Employees of Churches go to IRS.gov/ScheduleSE. and Church Organizations. Ministers, Members of Religious Exception to filing Schedule SE. If Orders, and Christian Science What's New you filed Form 4029 or Form 4361 and Practitioners received IRS approval, you may not In most cases, you must pay SE tax on Changes to Schedule SE (Form 1040). need to file Schedule SE. See Ministers, salaries and other income for services New Part III has been added to Sched- Members of Religious Orders, and you performed as a minister, a member ule SE to allow self-employed persons Christian Science Practitioners and of a religious order who hasn’t taken a to figure a maximum amount of self-em- Members of Certain Religious Sects for vow of poverty, or a Christian Science ployment tax payments which may be information on how to report your practitioner. But if you filed Form 4361 deferred. All maximum deferral self-employment earnings. amounts will be carried to Schedule 3 and received IRS approval, you will be (Form 1040), and the total amount that Even if you had a loss or a exempt from paying SE tax on those net you may elect to defer may be further TIP small amount of income from earnings. If you had no other income reduced. self-employment, it may be to subject to SE tax, enter “Exempt—Form your benefit to file Schedule SE and use 4361” on Schedule 2 (Form 1040), Schedule SE has also been revised in- either "optional method" in the instruc- line 4. However, if you had other earn- to a single form format, and each person tions for Part II of Schedule SE (dis- ings of $400 or more subject to SE tax, with net earnings from self-employment cussed later). see line A at the top of Schedule SE. will use a separate Schedule SE. For in- If you have ever filed Form stance, people filing a joint return for Who Must Pay 2020 who each have net earnings from ! 2031 to elect social security self-employment will each complete a Self-Employment (SE) Tax CAUTION coverage on your earnings as a Schedule SE. Self-Employed Persons minister, you can’t revoke that election. Maximum income subject to social se- You must pay SE tax if you had net If you must pay SE tax, include this curity tax. For 2020, the maximum earnings of $400 or more as a self-em- income on Schedule SE, line 2. But amount of self-employment income sub- ployed person. If you are in business don’t report it on Schedule SE, line 5a; ject to social security tax is $137,700. (farm or nonfarm) for yourself, you are it isn’t considered church employee in- Credits for self-employed persons. self-employed. come. Also, include on line 2: New refundable credits are available to You also must pay SE tax on your • The rental value of a home or an certain self-employed persons impacted share of certain partnership income and allowance for a home furnished to you by the coronavirus. See the Instructions your guaranteed payments. See Partner- (including payments for utilities), and for Form 7202 for more information. ship Income or Loss, later. • The value of meals and lodging provided to you, your spouse, and your Employees of Churches and dependents for your employer's conven- General ience. Church Organizations Instructions However, don’t include on line 2: If you had church employee income of Who Must File Schedule SE • Retirement benefits you received $108.28 or more, you must pay SE tax. from a church plan after retirement, or You must file Schedule SE if: Church employee income is wages you

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• The rental value of a home or an organization, those earnings are exempt the statement, contact the SSA Office of allowance for a home furnished to you from SE tax. International Programs. Don’t complete (including payments for utilities) after Exception–Dual citizens. A person Schedule SE. Instead, attach a copy of retirement. with dual U.S.-foreign citizenship gener- the statement to Form 1040 or Form If you were a duly ordained minister ally is considered to be a U.S. citizen for 1040-SR and enter “Exempt, see attach- who was an employee of a church and social security purposes. However, if ed statement” on Schedule 2 (Form you must pay SE tax, the unreimbursed you are a U.S. citizen and also a citizen 1040), line 4. business expenses that you incurred as a of a country with which the United church employee are not deductible as States has a bilateral social security Nonresident Alien an itemized deduction for income tax agreement, other than Canada or Italy, If you are a self-employed nonresident purposes. However, when figuring SE your work for the government of that alien living in the United States, you tax, subtract on line 2 the allowable ex- foreign country is always exempt from must pay SE tax if an international so- penses from your self-employment earn- U.S. social security taxes. For further in- cial security agreement in effect deter- ings and attach an explanation. formation about these agreements, see mines that you are covered under the If you were a U.S. citizen or resident the exception shown in the next section. U.S. social security system. See Excep- alien serving outside the United States tion under U.S. Citizens or Resident Ali- as a minister or member of a religious U.S. Citizens or Resident Aliens ens Living Outside the United States, order and you must pay SE tax, you Living Outside the United States earlier, for information about interna- can’t reduce your net earnings by the If you are a self-employed U.S. citizen tional social security agreements. If your foreign earned income exclusion or the or resident alien living outside the Uni- self-employment income is subject to foreign housing exclusion or deduction. ted States, in most cases you must pay SE tax, complete Schedule SE and file it See Pub. 517 for details. SE tax. You can’t reduce your foreign with your Form 1040-NR. earnings from self-employment by your Members of Certain Religious foreign earned income exclusion. Chapter 11 Bankruptcy Cases Sects Exception. The United States has social While you are a debtor in a chapter 11 bankruptcy case, your net profit or loss If you have conscientious objections to security agreements with many countries from self-employment (for example, social security insurance because of to eliminate dual taxes under two social from Schedule C or Schedule F) won't your membership in and belief in the security systems. Under these agree- be included in your Form 1040 or Form teachings of a religious sect recognized ments, you generally must pay social se- 1040-SR income. Instead, it will be in- as being in existence at all times since curity and Medicare taxes to only the cluded on the income tax return (Form December 31, 1950, and which has pro- country in which you live. 1041) of the bankruptcy estate. Howev- vided a reasonable level of living for its The United States now has social se- er, you (not the bankruptcy estate) are dependent members, you are exempt curity agreements with the following responsible for paying SE tax on your from SE tax if you received IRS appro- countries: Australia, Austria, Belgium, net earnings from self-employment. val by filing Form 4029. In this case, Brazil, Canada, Chile, Czech Republic, don’t file Schedule SE. Instead, enter Denmark, Finland, France, Germany, Enter on the dotted line to the left of “Exempt—Form 4029” on Schedule 2 Greece, Hungary, Iceland, Ireland, Italy, Schedule SE, line 3, “Chap. 11 bank- (Form 1040), line 4. See Pub. 517 for Japan, Luxembourg, the Netherlands, ruptcy income” and the amount of your details. Norway, Poland, Portugal, Slovak Re- net profit or (loss). Combine that public, Slovenia, South Korea, Spain, amount with the total of lines 1a, 1b, and U.S. Citizens Employed by Sweden, Switzerland, the United King- 2 (if any) and enter the result on line 3. Foreign Governments or dom, and Uruguay. For other reporting requirements, see International Organizations If you have questions about interna- Chapter 11 Bankruptcy Cases in the In- tional social security agreements, or to structions for Forms 1040 and 1040-SR. You must pay SE tax on income you see if any additional agreements have earned as a U.S. citizen employed by a More Than One Business been entered into, you can visit the So- foreign government (or, in certain cases, cial Security Administration's (SSA's) If you had two or more businesses sub- by a wholly owned instrumentality of a International Programs website at ject to self-employment tax, your net foreign government or an international SSA.gov/international. The website also earnings from self-employment are the organization under the International Or- provides contact information for ques- combined net earnings from all of your ganizations Immunities Act) for services tions about benefits and the agreements. businesses. If you had a loss in one busi- performed in the United States, Puerto ness, it reduces the income from anoth- If your self-employment income is Rico, Guam, American Samoa, the er. Figure the combined SE tax on one exempt from SE tax, you should get a Commonwealth of the Northern Mariana Schedule SE. Islands, or the U.S. Virgin Islands. Re- statement from the appropriate agency port income from this employment on of the foreign country verifying that Joint Returns Schedule SE, line 2. If you performed your self-employment income is subject Show the name of the spouse with services elsewhere as an employee of a to social security coverage in that coun- self-employment income on Sched- foreign government or an international try. If the foreign country won’t issue

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ule SE. If both spouses have self-em- (Form 1040), line 4. Don’t file Sched- is listed on. Don’t file Schedule SE un- ployment income, each must file a sepa- ule SE. less you have other income subject to rate Schedule SE. But if you have $400 or more of oth- SE tax. For an exception to this income er earnings subject to SE tax, you must not being subject to SE tax, see item 3 Include the total profits or losses file Schedule SE. Include on Sched- under Other Income and Losses Inclu- from all businesses on Form 1040 or ule SE, line 1a or 2, the net profit or ded in Net Earnings From Self-Employ- Form 1040-SR. Enter the combined SE (loss) from Schedule(s) C or F allocated ment, later. tax on Schedule 2 (Form 1040), line 4. to you as community income. On the If you and your spouse make the Community Income dotted line to the left of Schedule SE, election for a farm rental business that If any of the income from a business (in- line 3, enter “Exempt community in- you report on Form 4835, Farm Rental cluding farming) is community income, come” and the allocated amount. Figure Income and Expenses, each of you must then the income and deductions are re- the amount to enter on line 3 as follows. file a separate Form 4835 to report your ported as follows. • If the allocated amount is a net share of farm rental income based on • If only one spouse participates in profit, subtract it from the total of lines crops or livestock produced by the ten- the business, all of the income from that 1a, 1b, and 2. ant. Don’t file Schedule SE unless you business is the self-employment earn- • If the allocated amount is a loss, have other income subject to the SE tax. treat it as a positive amount and add it to ings of the spouse who carried on the Fiscal Year Filers business. the total of lines 1a, 1b, and 2. If your tax year is a fiscal year, use the If both spouses participate, the in- Community income included on • tax rate and annual earnings limit that come and deductions are allocated to the Schedule(s) C or F must be ! apply at the time the fiscal year begins. spouses based on their distributive CAUTION divided for income tax purpo- Don’t prorate the tax or annual earnings shares. ses based on the community property limit for a fiscal year that overlaps the If either or both spouses are part- laws of your state. See Pub. 555 for • date of a change in the tax or annual ners in a partnership, see Partnership In- more information. earnings limit. come or Loss, later. • If both spouses elected to treat the Qualified Joint Ventures business as a qualifying joint venture, If you and your spouse materially partic- see Qualified Joint Ventures, later. ipate as the only members of a jointly Line Instructions Married filing separately. If you and owned and operated business, and you You will need to figure your net earn- your spouse had community income and file a joint return for the tax year, you ings from self-employment. To find out file separate returns, attach Schedule SE can make a joint election to be taxed as what is included as net earnings from to the return of each spouse with a qualified joint venture instead of a self-employment, see Net Earnings self-employment earnings under the partnership. For information on what it From Self-Employment, later. rules described earlier. Also, attach means to materially participate, see Ma- Schedule(s) C or F (showing the spou- terial participation in the Instructions Enter all negative amounts in se's share of community income and ex- for Schedule C. TIP (parentheses). penses) to the return of each spouse. To make this election, you must di- Spouse who carried on the business. vide all items of income, gain, loss, de- If you are the only spouse who carried duction, and credit attributable to the Instructions for Part I on the business, you must include on business between you and your spouse Schedule SE, line 3, the net profit or in accordance with your respective inter- You Have Only Church (loss) reported on the other spouse's ests in the venture. Each of you must file Employee Income Subject Schedule C or F (except in those cases a separate Schedule C or F. On each line to SE Tax described later under Income and Losses of your separate Schedule C or F, you If your only income subject to SE tax is Not Included in Net Earnings From must enter your share of the applicable church employee income (described ear- Self-Employment). Enter on the dotted income, deduction, or loss. Each of you lier under Employees of Churches and line to the left of Schedule SE, line 3, also must file a separate Schedule SE to Church Organizations), skip lines 1 “Community income taxed to spouse” pay SE tax, as applicable. through 4b. Enter -0- on line 4c and go and the amount of any net profit or For more information on qualified to line 5a. (loss) allocated to your spouse as com- joint ventures, go to IRS.gov/QJV. munity income. Combine that amount Note. Income from services you per- with the total of lines 1a, 1b, and 2. En- Rental real estate business. If you and form as a minister, a member of a reli- ter the result on line 3. your spouse make the election to be gious order, or a Christian Science prac- taxed as a qualified joint venture for titioner isn’t church employee income. Spouse who didn’t carry on the busi your rental real estate business, the in- ness. If you aren’t the spouse who car- come generally isn’t subject to SE tax. Line 1b ried on the business and you had no oth- To indicate that election, be sure to If you were receiving social security re- er income subject to SE tax, enter “Ex- check the “QJV” box in Part I, line 2, of tirement or social security disability empt community income” on Schedule 2 each Schedule E that the rental property benefits at the time you received your

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Conservation Reserve Program (CRP) Partnership Income or Loss Other Income and Losses payment(s), enter the amount of your If you were a general or limited partner Included in Net Earnings taxable CRP payment(s) on line 1b. in a partnership, include on line 1a or These payments are included on Sched- From Self-Employment line 2, whichever applies, the amount of ule F, line 4b, or listed on Schedule K-1 net earnings from self-employment from 1. Rental income from a farm if, as (Form 1065), box 20, code AH. Schedule K-1 (Form 1065), box 14, landlord, you materially participated in Lines 4a Through 4c code A. General partners should reduce the production or management of the this amount by certain expenses before production of farm products on this If both lines 4a and 4c are less than $400 land. This income is farm earnings. To and you have an amount on line 1b, entering it on Schedule SE. See your Schedule K-1 instructions. If you reduce determine whether you materially par- combine lines 1a and 2. ticipated in farm management or pro- If the total of lines 1a and 2 is the amount you enter on Schedule SE, • you must attach an explanation. Limited duction, don’t consider the activities of $434 or more, file Schedule SE (com- any agent who acted for you. The mate- pleted through line 4c) with your tax re- partners should include only guaranteed payments for services actually rendered rial participation tests for landlords are turn. Enter -0- on Schedule 2 (Form explained in Pub. 225. 1040), line 4.* to or on behalf of the partnership. 2. Cash or a payment-in-kind from If the total of lines 1a and 2 is less • If a partner died and the partnership the Department of Agriculture for par- than $434, don’t file Schedule SE un- continued, include in self-employment ticipating in a land diversion program. less you choose to use an optional meth- income the deceased's distributive share 3. Payments for the use of rooms or od to figure your SE tax. of the partnership's ordinary income or other space when you also provided sub- *If you also have church employee in- loss through the end of the month in stantial services for the convenience of come (described earlier under Employ- which he or she died. See section your tenants. Examples are hotel rooms, ees of Churches and Church Organiza- 1402(f). tions), also complete lines 5a and 5b. boarding houses, tourist camps or Complete the rest of Schedule SE, as ap- If you were married and both you and homes, trailer parks, parking lots, ware- propriate. your spouse were partners in a partner- houses, and storage garages. See Pub. ship, each of you must report your net 334 for more information. Additional Medicare Tax earnings from self-employment from the 4. Income from the retail sale of partnership. Each of you must file a sep- newspapers and magazines if you were A 0.9% Additional Medicare Tax may arate Schedule SE and report the part- age 18 or older and kept the profits. apply to you if the total amount on line 6 nership income or loss on Schedule E of all your Schedules SE exceeds one of 5. Income you receive as a direct (Form 1040), Part II, for income tax pur- the following threshold amounts (based seller. Newspaper carriers or distributors poses. If only one of you was a partner on your filing status). of any age are direct sellers if certain in a partnership, the spouse who was the Married filing jointly—$250,000 conditions apply. See Pub. 334 for de- • partner must report his or her net earn- Married filing tails. • ings from self-employment from the separately—$125,000 6. Amounts received by current or partnership. • Single, Head of household, or former self-employed insurance agents Qualifying widow(er)—$200,000 Community income. Your own distrib- and salespersons that are: utive share of partnership income is in- a. Paid after retirement but figured If you have both wages and self-em- cluded in figuring your net earnings as a percentage of commissions received ployment income, the threshold amount from self-employment. Unlike the divi- from the paying company before retire- for applying the Additional Medicare sion of that income between spouses for ment, Tax on the self-employment income is figuring income tax, no part of your reduced (but not below zero) by the share can be included in figuring your b. Renewal commissions, or amount of wages subject to Additional spouse's net earnings from self-employ- c. Deferred commissions paid after Medicare Tax. ment. retirement for sales made before retirement. Use Form 8959, Additional Medicare Share Farming Tax, to figure this tax. For more infor- However, certain termination pay- mation, see the Instructions for Form You are considered self-employed if you ments received by former insurance 8959, or go to IRS.gov/ADMT. produce crops or livestock on someone salespersons aren’t included in net earn- else's land for a share of the crops or ings from self-employment (as ex- Net Earnings From livestock produced (or a share of the plained in item 10 under Income and proceeds from the sale of them). This Losses Not Included in Net Earnings Self-Employment applies even if you paid another person From Self-Employment). In most cases, net earnings include your (an agent) to do the actual work or management for you. Report your net earn- 7. Income of certain crew members net profit from a farm or nonfarm busi- of fishing vessels with crews of normal- ness. ings for income tax purposes on Sched- ule F (Form 1040) and for SE tax purpo- ly fewer than 10 people. See Pub. 334 ses on Schedule SE. See Pub. 225 for for details. details.

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8. Fees as a state or local govern- line to the left of Schedule SE, line 3. a. The payment was received from ment employee if you were paid only on Subtract that amount from the total of an insurance company because of serv- a fee basis and the job wasn’t covered lines 1a, 1b, and 2, and enter the result ices you performed as an insurance under a federal-state social security cov- on line 3. salesperson for the company. erage agreement. 3. Income you received as a retired b. The payment was received after 9. Interest received in the course of partner under a written partnership plan termination of your agreement to per- any trade or business, such as interest on that provides for lifelong periodic retire- form services for the company. notes or accounts receivable. ment payments if you had no other inter- c. You didn’t perform any services 10. Fees and other payments received est in the partnership and didn’t perform for the company after termination and by you for services as a director of a services for it during the year. before the end of the year in which you corporation. 4. Income from real estate rentals if received the payment. 11. Recapture amounts under sections you didn’t receive the income in the d. You entered into a covenant not 179 and 280F that you included in gross course of a trade or business as a real es- to compete against the company for at income because the business use of the tate dealer. Report this income on least a 1-year period beginning on the property dropped to 50% or less. Don’t Schedule E. date of termination. include amounts you recaptured on the 5. Income from farm rentals (includ- e. The amount of the payment de- disposition of property. See Form 4797. ing rentals paid in crop shares) if, as pended primarily on policies sold by or 12. Generally, fees you received as a landlord, you didn’t materially partici- credited to your account during the last professional fiduciary. This also may ap- pate in the production or management of year of the agreement, or the extent to ply to fees paid to you as a nonprofes- the production of farm products on the which those policies remain in force for sional fiduciary if the fees relate to ac- land. See Pub. 225 for details. Report some period after termination, or both. this income on Form 4835. Use two tive participation in the operation of the f. The amount of the payment didn’t Forms 4835 if you and your spouse estate's business, or the management of depend to any extent on length of serv- made an election to be taxed as a quali- an estate that required extensive man- ice or overall earnings from services fied joint venture. agement activities over a long period of performed for the company (regardless time. 6. Payments you receive from the of whether eligibility for the payment 13. Gain or loss from section 1256 Conservation Reserve Program if you depended on length of service). contracts or related property by an op- are receiving social security benefits for tions or commodities dealer in the nor- retirement or disability. Deduct these Statutory Employee Income mal course of dealing in or trading sec- payments on line 1b of Schedule SE. If you were a statutory employee, don’t tion 1256 contracts. 7. Dividends on shares of stock and include the net profit or (loss) from interest on bonds, notes, or other evi- Schedule C, line 31, on Schedule SE, Income and Losses Not dence of indebtedness issued with inter- line 2. But be sure to include statutory Included in Net Earnings est coupons or in registered form by any employee social security wages and tips From Self-Employment corporation (including those issued by a from Form W-2 on line 8a. government or its political subdivision), 1. Salaries, fees, and other income if you didn’t receive the income in the Instructions for Part II subject to social security or Medicare course of your trade or business as a tax that you received for performing dealer in stocks or securities. Optional Methods services as an employee, including services performed as an employee under the 8. Gain or loss from: railroad retirement system. This includes a. The sale or exchange of a capital How the Optional Methods Can services performed as a public official asset; Help You (except as a fee basis government em- b. The sale, exchange, involuntary Social security coverage. The optional ployee as explained in item 8 under Oth- conversion, or other disposition of prop- methods may give you credit toward er Income and Losses Included in Net erty unless the property is stock in trade your social security coverage even Earnings From Self-Employment, earli- or other property that would be includi- though you have a loss or a small er). ble in inventory, or held primarily for amount of income from self-employ- 2. Fees received for services per- sale to customers in the ordinary course ment. of the business; or formed as a notary public. If you had no Credits affected by earned income. other income subject to SE tax, enter c. Certain transactions in timber, Using the optional methods may qualify “Exempt—Notary” on Schedule 2 coal, or domestic iron ore. you to claim the earned income credit (Form 1040), line 4. Don’t file Sched- 9. Net operating losses from other (EIC), additional child tax credit ule SE. However, if you had other earn- years. (ACTC), or child and dependent care ings of $400 or more subject to SE tax, credit or give you a larger credit if your enter “Exempt—Notary” and the 10. Termination payments you received as a former insurance salesperson net earnings from self-employment (de- amount of your net profit as a notary termined without using the optional public from Schedule C on the dotted if all of the following conditions are met. methods) are less than $5,640. Figure

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the EIC, ACTC, and child and depend- nership agreement. With guaranteed If you use both methods to figure net ent care credit with and without using payments, your share of the partnership's earnings, you can’t report more than the optional methods to see if the op- gross income is your guaranteed pay- $5,640 of net earnings from self-em- tional methods will benefit you. ments plus your share of the gross in- ployment. Self-employed health insurance de- come after it is reduced by all guaran- duction. The optional methods of com- teed payments made by the partnership. Instructions for Part III puting net earnings from self-employ- If you were a limited partner, include ment may be used to figure your only guaranteed payments for services Line 18 self-employed health insurance deduc- you actually rendered to or on behalf of Use any reasonable method to divide the tion. the partnership. net profit or (loss) you reported on line 3 Other items affected by AGI. Using between (a) January 1, 2020, through the optional methods may decrease your Nonfarm Optional Method March 26, 2020, and (b) March 27, adjusted gross income (AGI), which You may be able to use this method to 2020, through December 31, 2020. A may affect your eligibility for credits, figure your net earnings from nonfarm reasonable method will accurately re- deductions, or other items that are sub- self-employment if your net nonfarm flect the time when income was earned ject to an AGI limit. Figure your AGI profits were less than $6,107 and also or accrued and deductible expenses were with and without using the optional less than 72.189% of your gross non- paid or incurred, depending on your methods to see if the optional methods farm income. Net nonfarm profits are method of accounting. In most cases, a will benefit you. the total of the amounts from: proportional division of the amount re- Schedule C (Form 1040), line 31; ported on line 3 based upon the number Using the optional methods • and of days in each period will be consid- may give you the benefits de- ! Schedule K-1 (Form 1065), ered reasonable. CAUTION scribed above, but they also • box 14, code A (from other than farm may increase your SE tax. partnerships). Line 20 To use this method, you also must be Use any reasonable method to divide the Changing Your Method regularly self-employed. You meet this optional method amounts you reported on line 15 and line 17 between (a) Janu- You can change the method used to fig- requirement if your actual net earnings ary 1, 2020, through March 26, 2020, ure your net earnings from self-employ- from self-employment were $400 or and (b) March 27, 2020, through De- ment after you file your return. That is, more in 2 of the 3 years before the year cember 31, 2020. A reasonable method you can change from the regular to the you use the nonfarm optional method. will accurately reflect the time when in- optional method or from the optional to The net earnings of $400 or more could come was earned or accrued and deduc- the regular method. To do this, file Form be from either farm or nonfarm earnings tible expenses were paid or incurred, de- 1040-X. or both. The net earnings include your distributive share of partnership income pending on your method of accounting. or loss subject to SE tax. In most cases, a proportional division of Farm Optional Method the amounts reported on line 15 or You may use this method to figure your You can use the nonfarm optional line 17 based upon the number of days net earnings from farm self-employment method to figure your earnings from in each period will be considered rea- if your gross farm income was $8,460 or self-employment for only 5 years. The 5 sonable. less or your net farm profits were less years don’t have to be consecutive. than $6,107. Net farm profits are: Under this method, report in Part II, For example, an individual may allo- • The total of the amounts from line 17, two-thirds of your gross non- cate 22.5% of the individual’s annual Schedule F (Form 1040), line 34, and farm income, up to the amount on earnings from self-employment to the Schedule K-1 (Form 1065), box 14, line 16, as your net earnings. But you period from January 1, 2020, through code A, minus can’t report less than your actual net March 26, 2020, and 77.5% of the indi- • The amount you would have en- earnings from nonfarm self-employ- vidual’s annual earnings to the period tered on Schedule SE, line 1b, had you ment. from March 27, 2020, through Decem- not used the optional method. Figure your share of gross income ber 31, 2020. There is no limit on how many years from a nonfarm partnership in the same Line 22 manner as a farm partnership. See Farm you can use this method. Use any reasonable method to divide the Optional Method for details. Under this method, report in Part II, church employee income you reported line 15, two-thirds of your gross farm in- on line 5a between (a) January 1, 2020, come, up to $5,640, as your net earn- Using Both Optional Methods through March 26, 2020, and (b) March ings. This method can increase or de- If you can use both methods, you can re- 27, 2020, through December 31, 2020. crease your net earnings from farm port less than your total actual net earn- In most cases, the beginning of your tax self-employment even if the farming ings from farm and nonfarm self-em- year will include income paid with your business had a loss. ployment, but you can’t report less than first paycheck in 2020, even if some of For a farm partnership, figure your your actual net earnings from nonfarm the income was earned in 2019, and the share of gross income based on the part- self-employment alone. end of your tax year will include your

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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

last paycheck in 2020. A reasonable You will include this amount to figure repayment amounts are split equally be- method will accurately reflect when the the amount you can actually elect to de- tween 2021 and 2022; however, your church employee income was earned. In fer on Schedule 3 (Form 1040), line 12e. maximum deferral amounts are used to most cases, your church employee in- See the instructions for line 12e of figure your equal repayment amounts, come will be divided into regular pay Schedule 3 (Form 1040) for additional not the amount you actually deferred. periods, which can be used to attribute information about figuring and reporting For example, if your maximum deferral income to the periods described in (a) the actual amount of self-employment of self-employment tax payments is and (b). tax payments that you may defer. $6,000, but you only actually defer $4,000, your first repayment amount Line 26 The amount you figure on line 26 is will be $1,000 and your second repay- The amount you figure on line 26 may also used to figure the amount of defer- ment amount will be $3,000. not be the amount of self-employment red self-employment tax payments that tax payments that you can elect to defer. you must repay in 2021 and 2022. The

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