Instructions For Form 1040-Ss - U.s. Self-Employment Tax Return (Including The Additional Child Tax Credit For Bona Fide Residents Of Puerto Rico) - Internal Revenue Service - 2002 Page 7
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Net operating losses from other
methods may require you to pay SE tax
self-employment if your net nonfarm
years.
when you would otherwise not be
profits (defined on this page) were less
•
Termination payments you received
required to pay.
than $1,733 and also less than
as a former insurance salesperson if all
72.189% of your gross nonfarm
If you are filing a joint return and
of the following conditions are met.
income. To use this method, you also
both you and your spouse choose to
1. The payment was received from
must be regularly self-employed. You
use an optional method to figure net
an insurance company because of
meet this requirement if your actual net
earnings from self-employment, you
services you performed as an
earnings from self-employment were
must each complete and attach a
insurance salesperson for the
$400 or more in 2 of the 3 years
separate Part VI.
company.
preceding the year you use the
Note: Using the optional methods may
2. The payment was received after
nonfarm method. The net earnings of
qualify bona fide residents of Puerto
termination of your agreement to
$400 or more could be from either farm
Rico to claim the additional child tax
perform services for the company.
or nonfarm earnings or both. The net
credit or give them a larger credit.
3. You did not perform any services
earnings include your distributive share
for the company after termination and
Farm Optional Method
of partnership income or loss subject to
before the end of the year in which you
SE tax. Use of this method is limited to
You may use this method to figure your
received the payment.
5 years, which do not have to be
net earnings from farm self-employment
4. You entered into a covenant not
consecutive.
if your gross farm income was $2,400
to compete against the company for at
or less or your net farm profits (defined
least a 1-year period beginning on the
Under this method, you report on
on this page) were less than $1,733.
date of termination.
line 4, two-thirds of your gross nonfarm
There is no limit on how many years
5. The amount of the payment
income, up to $1,600, as your net
you can use this method.
depended primarily on policies sold by
earnings. But you may not report less
or credited to your account during the
Under this method, you report on
than your actual net earnings from
last year of the agreement, or the
line 2, two-thirds of your gross farm
nonfarm self-employment.
extent to which those policies remain in
income, up to $1,600, as your net
force for some period after termination,
earnings. This method can increase or
You may change the method after
or both.
decrease your net self-employment
you file your return. That is, you can
6. The amount of the payment did
farm earnings even if the farming
change from the regular to the optional
not depend to any extent on length of
business had a loss.
method or from the optional to the
service or overall earnings from
regular method.
You may change the method after
services performed for the company
you file your return. That is, you can
(regardless of whether eligibility for the
Figure your share of gross income
change from the regular to the optional
payment depended on length of
from a nonfarm partnership in the same
method or from the optional to the
service).
manner as a farm partnership. See
regular method.
Farm Optional Method on this page
Line 8b
For a farm partnership, figure your
for details.
If you received tips of $20 or more in
share of gross income based on the
any month and did not report the full
partnership agreement. With
Net nonfarm profits is the total of
amount to your employer, you must file
guaranteed payments, your share of
the amounts from Part IV, line 27, and
Form 4137, Social Security and
the partnership’s gross income is your
your distributive share from other than
Medicare Tax on Unreported Tip
guaranteed payments plus your share
farm partnerships.
Income. Disregard the references to
of the gross income after it is reduced
Form 1040 shown on Form 4137. Also
by all guaranteed payments made by
Using Both Optional
see the instructions for Part I, line 5, on
the partnership. If you were a limited
page 4. Enter on line 8b the amount
Methods
partner, include only guaranteed
from Form 4137, line 9.
payments for services you actually
If you can use both methods, you may
rendered to or on behalf of the
report less than your total actual net
Part VI—Optional
partnership.
earnings from farm and nonfarm
Methods To Figure Net
Net farm profits is the total of the
self-employment, but you cannot report
amounts from Part III, line 36, and your
less than your actual net earnings from
Earnings
distributive share from farm
nonfarm self-employment alone.
partnerships.
The optional methods may give you
If you use both methods to figure net
credit toward your social security
Nonfarm Optional Method
earnings from self-employment, you
coverage even though you have a loss
cannot report more than $1,600 of net
or a small amount of income from
You may be able to use this method to
earnings from self-employment.
self-employment. But the optional
figure your net earnings from nonfarm
-7-
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