Page 46 - Small Business Taxes

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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
SE tax rate. The 2022 SE tax rate on net earnings is
Net Operating Losses (NOLs) 15.3% (12.4% social security tax plus 2.9% Medicare tax).
If your deductions for the year are more than your income Maximum earnings subject to SE tax. Only the first
for the year, you may have an NOL. You can use an NOL $147,000 of your combined wages, tips, and net earnings
by deducting it from your income in another year or years. in 2022 is subject to any combination of the 12.4% social
security part of SE tax, social security tax, or the Tier 1
Examples of typical losses that may produce an NOL part of railroad retirement tax.
include, but are not limited to, losses incurred from the fol- All of your combined wages, tips, and net earnings in
lowing. 2022 are subject to any combination of the 2.9% Medicare
• Your trade or business. part of SE tax, Medicare tax, or Medicare part of railroad
retirement tax.
• A casualty or theft resulting from a federally declared If your wages and tips are subject to either social secur-
disaster. ity tax or the Tier 1 part of railroad retirement tax, or both,
• Moving expenses. and total at least $147,000, do not pay the 12.4% social
• Rental property. security part of the SE tax on any of your net earnings.
However, you must pay the 2.9% Medicare part of the SE
A loss from operating a business is the most common tax on all your net earnings.
reason for an NOL.
For details about NOLs, see Pub. 536. It explains how Additional Medicare Tax. A 0.9% Additional Medicare
Tax may apply to you if your net earnings from self-em-
to figure an NOL, when to use it, how to claim an NOL de- ployment exceed a threshold amount (based on your filing
duction, and how to figure an NOL carryover. status). For more information, see Self-Employment (SE)
Tax in chapter 1, and Form 8959 and its instructions.
Not-for-Profit Activities Special Rules and Exceptions

If you do not carry on your business to make a profit, there Aliens. Generally, resident aliens must pay SE tax under
is a limit on the deductions you can take. You cannot use
a loss from the activity to offset other income. Activities the same rules that apply to U.S. citizens. Nonresident ali-
ens are not subject to SE tax unless an international social
you do as a hobby, or mainly for sport or recreation, come
under this limit. security agreement (also known as a totalization agree-
ment) in effect determines that they are covered under the
For details about not-for-profit activities, see chapter 1 U.S. social security system. However, residents of the
of Pub. 535. That chapter explains how to determine U.S. Virgin Islands, Puerto Rico, Guam, the Common-
whether your activity is carried on to make a profit and wealth of the Northern Mariana Islands, or American Sa-
how to figure the amount of loss you can deduct. moa are subject to SE tax, as they are considered U.S.
residents for SE tax purposes. For more information on
aliens, see Pub. 519, U.S. Tax Guide for Aliens.

Child employed by parent. You are not subject to SE
10. tax if you are under age 18 and you are working for your
father or mother.
Church employee. If you work for a church or a qualified
Self-Employment (SE) Tax church-controlled organization (other than as a minister,
member of a religious order, or Christian Science practi-
The SE tax rules apply no matter how old you are tioner) that elected an exemption from social security and
! and even if you are already receiving social secur- Medicare taxes, you are subject to SE tax if you receive
CAUTION ity and Medicare benefits. $108.28 or more in wages from the church or organiza-
tion. For more information, see Pub. 517, Social Security
and Other Information for Members of the Clergy and Reli-
Who Must Pay SE Tax? gious Workers.
Fishing crew member. If you are a member of the crew
Generally, you must pay SE tax and file Schedule SE on a boat that catches fish or other aquatic life, your earn-
(Form 1040) if your net earnings from self-employment ings are subject to SE tax if all the following conditions ap-
were $400 or more. Use Schedule SE to figure net earn- ply.
ings from self-employment.
1. You do not get any pay for the work except your share
Sole proprietor or independent contractor. If you are of the catch or a share of the proceeds from the sale
self-employed as a sole proprietor or independent con- of the catch, unless the pay meets all the following
tractor, you generally use Schedule C (Form 1040) to fig- conditions.
ure your earnings subject to SE tax.

Page 40 Chapter 10 Self-Employment (SE) Tax