Is There Self-Employment Tax Associated with Farm Income?
Yes, self-employment tax may apply to farm income if you are engaged in farming as a trade or business. The IRS treats farming as a self-employment activity, and therefore, you may be required to pay self-employment tax on your net farm income.
When Is Self-Employment Tax Required?
- Self-employment tax applies if you have net earnings from farming of $400 or more in a tax year.
- You must report your farm income and expenses on Schedule F (Form 1040), which is used to calculate your profit or loss from farming.
- After completing Schedule F, you must file Schedule SE (Form 1040) to calculate and report your self-employment tax.
How to Report Farm Income and Self-Employment Tax
- Complete Schedule F (Form 1040) to determine your net farm profit or loss.
- Transfer the net farm income (or loss) to Line 6 of Schedule 1 (Form 1040).
- Use Schedule SE (Form 1040) to compute your self-employment tax based on the net farm income reported.
- Attach Schedule SE to your Form 1040 return.
Additional Considerations
- You may be eligible to reduce your tax by averaging your farm income over the previous three years using Schedule J (Form 1040).
- If you have a net operating loss (NOL) from farming, you may use Form 172 to figure the NOL deduction.
- For more detailed guidance, refer to Publication 225 (Farmer’s Tax Guide), which provides comprehensive information on farming-related tax rules.
Source:
Farmer’s Tax Guide
Schedule F (Form 1040) - Profit or Loss From Farming
Publication 54 - Tax Guide for Small Business
Disclaimer: Always verify details with the official Federal or State Department of Revenue Forms and Instructions.