Form 1040SS: Guide for U.S. Territory Residents with Self-Employment Income

Overview of What is Form 1040SS and its Purpose

Form 1040SS Purpose

• Form 1040SS is used by residents of U.S. territories—specifically the U.S. Virgin Islands, Guam, American Samoa, the Commonwealth of the Northern Mariana Islands, and Puerto Rico—who are not required to file a U.S. income tax return but have self-employment income or are eligible to claim certain credits.
• It allows taxpayers to report net earnings from self-employment (SE) to the United States and, if necessary, pay self-employment (SE) tax on that income.
• The Social Security Administration (SSA) uses the information from this form to calculate benefits under the social security program.
• SE tax applies regardless of age and even if the taxpayer is already receiving Social Security or Medicare benefits.
• Bona fide residents of Puerto Rico may also use Form 1040SS to claim the Additional Child Tax Credit (ACTC), even if they are not required to pay SE tax.

Who Needs to File Form 1040SS?

Purpose of Form

• Form 1040SS is used by bona fide residents of U.S. territories—Guam, American Samoa, U.S. Virgin Islands, Commonwealth of the Northern Mariana Islands (CNMI), and Puerto Rico—who are not required to file a U.S. income tax return but have self-employment income or are eligible to claim certain credits.
• It reports net earnings from self-employment to the U.S. government and allows payment of self-employment (SE) tax, which contributes to Social Security and Medicare benefits.
• Bona fide residents of Puerto Rico may also use this form to claim the Additional Child Tax Credit (ACTC), even if no SE tax is owed.

Filing Requirements

• You must file Form 1040SS if you meet all three conditions: (1) you had net earnings from self-employment of $400 or more (or church employee income of $108.28 or more), (2) you are not required to file a U.S. income tax return, and (3) you are a bona fide resident of one of the specified U.S. territories.
• Even if you have no SE tax liability, you may still need to file to report household employment taxes, uncollected tips, wages without tax withholding, Additional Medicare Tax, or to claim excess social security tax withheld or the ACTC.
• Joint filers with separate self-employment businesses must each file a separate Schedule C or Schedule F and Schedule SE, but attach them to a single Form 1040SS.

General Instructions

• File by April 15 for calendar-year taxpayers; fiscal-year filers must file by the 15th day of the 4th month after their fiscal year ends.
• Use Form 4868 for an automatic 6-month extension (until October 15 for Puerto Rico residents).
• Handwrite your signature if filing on paper; digital or typed signatures are not valid.
• Send with payment to P.O. Box 1303, Charlotte, NC 28201-1303; without payment to Department of the Treasury, Austin, TX 73301-0215.

Key Sections Form 1040SS: Important parts of the form and what they cover

Part I—Total Tax and Credits

• Line 1 - Filing status: Determines your tax filing status, including Qualifying Surviving Spouse, which may affect your tax liability and credits.
• Line 2 - Qualifying children: For bona fide residents of Puerto Rico claiming the Additional Child Tax Credit (ACTC); enter name and SSN for each qualifying child.
• Line 3 – Self-employment tax from Schedule SE (Form 1040), line 12. Requires attachment of Schedule SE and applicable schedules.
• Line 4 – Household employment taxes. Requires attachment of Schedule H (Form 1040). Applies if you paid any one household employee $2,800 or more in 2025, or total cash wages of $1,000 or more in any quarter of 2024 or 2025 to all household employees.
• Line 5 - Additional Medicare Tax: Enter total Additional Medicare Tax from Form 8959, Part IV, line 18, and attach Form 8959 to your return.
• Line 6a - Employee social security and Medicare tax on tips not reported to employer: Complete Form 4137 if tips were not fully reported; enter tax due from Form 4137, line 13.
• Line 6b - Uncollected employee social security and Medicare tax on tips: Enter tax due on tips reported to employer but not fully withheld, identified by codes A and B on W-2 forms.
• Line 6c - Uncollected employee social security and Medicare tax on wages: Complete Form 8919 if employer did not withhold tax; enter tax due from Form 8919, line 13.
• Line 6d - Uncollected employee social security and Medicare tax on group-term life insurance: Enter tax due on group-term life insurance, identified by codes M and N on W-2 forms.
• Line 7 – Total tax. Calculated by adding lines 3, 4, 5, and 6e.
• Line 8 - 2025 estimated tax payments and amount applied from 2024 return: Enter estimated tax payments for 2025, including overpayments from 2024 applied to 2025 estimated tax.
• Line 9 - Amount paid with request for extension of time to file: Enter payment made with Form 4868 or extension request; exclude convenience fees for credit/debit card payments.
• Line 10 - Additional child tax credit from Part II, line 19: Enter ACTC amount calculated in Part II, line 19.
• Line 11a - Additional Medicare Tax withheld: Enter amount withheld by employer, shown on Form 8959, line 24.
• Line 11b - Excess social security tax withheld: Claim credit for excess social security tax withheld if total wages exceed $176,100; attach W-2 forms.
• Line 12- Total payments and credits
• Line 13 - Amount overpaid: Subtract total tax (line 7) from total credits (line 12); if under $1, refund requires written request.
• Line 14a - Amount of line 13 you want refunded to you: Specify refund amount; use IRS2Go or IRS.gov/Refunds to track status.
• Line 14b - Routing number: Enter nine-digit routing number for direct deposit; ensure it matches financial institution requirements.
• Line 14d - Account number: Enter up to 17 characters (numbers and letters), including hyphens; omit spaces and special symbols.
• Line 15 - Amount of line 13 you want applied to 2026 estimated tax: Apply overpayment to next year’s estimated tax; this election cannot be changed later.
• Line 16 – Amount You Owe: If line 7 is more than line 12, subtract line 12 from line 7 to determine the amount you owe. You must pay this amount in full by April 15, 2026, to avoid interest and penalties. No payment is required if the amount is less than $1. Estimated tax payments for 2025 should not be included in this payment.

Third Party Designee

• Allows taxpayers to designate a third party to receive correspondence from the IRS.
• Must include the designee’s name, address, and phone number.

Sign Here Section

• Requires the taxpayer’s signature and date to validate the return.
• Includes instructions for surviving spouses or personal representatives if applicable.

Paid Preparer Use Only

• Reserved for tax preparers to include their PTIN and indicate their role in preparing the return.
• Preparer is responsible for the return’s accuracy and must sign it.

Part II—Bona Fide Residents of Puerto Rico Claiming Additional Child Tax Credit

• Line 1 — Do you have one or more qualifying children under age 17 with the required social security number? Check Yes or No.
• Line 2 — Qualifying Children × Credit: Number of qualifying children × $1,700 (2025 ACTC amount).
• Line 3 — Modified AGI: Enter your modified adjusted gross income.
• Line 4 — Income Threshold: Filing status-based income limit ($200k/$400k).
• Line 5 — Excess Income: Amount by which MAGI exceeds threshold (round to $1,000).
• Line 6 — Income Reduction: 5% of excess income from line 5 to reduce credit.
• Line 7 — Child Tax Credit Base: Number of children × $2,200.
• Line 8 — Other Dependents Credit: Number of other dependents × $500.
• Line 9 — Total Potential Credit: Sum of lines 7 + 8.
• Line 10 — Adjusted Credit: Line 9 minus line 6.
• Line 11 — Enter the smaller of line 2 or line 10.
• Line 12a–12c — SE & Medicare Tax Base: One-half SE tax + Additional Medicare tax; total = refundable base.
• Line 13a–13e — Taxes Withheld: Include Social Security, Medicare, and Additional Medicare taxes.
• Line 14 — Add Credit Base: Line 12c + line 13f = max refundable credit.
• Line 15 — Additional Medicare Tax Withheld: From Form 8959.
• Line 16 — Adjusted Base: Line 14 minus line 15.
• Line 17 — Excess Social Security Withheld: From Part I, line 11b.
• Line 18 — Compare Adjusted Base: Subtract line 17 from line 16 (if positive).
• Line 19 — ACTC Amount: Smaller of line 11 or line 18; enter on Part I, line 10.

What's New for Form 1040SS: Recent Tax Law Changes and Updates for the Current Year

• Changes to the Qualifying Children section

  The Qualifying Children section now includes numbered rows for clearer organization and easier completion.

• Write-in information

  Line 6 has been expanded to provide a dedicated entry space for all tax write-ins.

• Social Security Number required to claim the Additional Child Tax Credit (ACTC)

  Starting in tax year 2025, a valid SSN (valid for employment and issued before the return due date) is required to claim the ACTC. For joint returns, only one filer needs a valid SSN; the other may have an SSN or ITIN, also issued before the due date.

• Death of a taxpayer

  If filing for someone who died before filing a 2025 return, check the "Deceased" box and enter the date of death in the designated space.

• Electronic payments and direct deposit

  The IRS encourages electronic payments and direct deposit for refunds. Options include DirectPay, debit/credit cards, digital wallets, and online accounts. Visit IRS.gov/Payments for more options.

• Maximum income subject to social security tax for 2025

  For 2025, the maximum self-employment income subject to social security tax is $176,100.

• Maximum income subject to social security tax for 2026

  For 2026, the maximum self-employment income subject to social security tax increases to $184,500.

• Optional methods to figure net earnings

  For 2025, the maximum income for using optional methods to figure net earnings is $7,240.

• New option for scheduled appointments at Taxpayer Assistance Centers (TACs)

  Starting in 2025, taxpayers with scheduled TAC appointments can receive confirmations, reminders, and cancellation notices via text message on their mobile devices.

Taxpayers Affected by Form 1040SS Updates

Key Changes Impacting Taxpayers

• Qualifying Children Section: The form now includes numbered rows for claiming qualifying children, improving clarity and organization.
• Additional Child Tax Credit (ACTC): Starting in tax year 2025, a valid Social Security Number (SSN) is required to claim the ACTC. The SSN must be valid for employment and issued before the return’s due date (including extensions). For joint returns, only one filer needs a valid SSN.
• Death of a Taxpayer: If filing for someone who died before filing a 2025 return, taxpayers must check the “Deceased” box and enter the date of death on Form 1040-SS.
• Electronic Payments: The IRS encourages electronic payments and direct deposit for refunds. Options include DirectPay, debit/credit cards, digital wallets, and online accounts. More details are available at IRS.gov/Payments.
• Maximum Income for Social Security Tax: For 2025, the maximum self-employment income subject to social security tax is $176,100. For 2026, this increases to $184,500.
• Write-in Information: Line 6 has been expanded to provide dedicated entry spaces for all tax write-ins.
• Optional Methods for Net Earnings: For 2025, the maximum income for using optional methods to figure net earnings is $7,240.
• TAC Appointment Reminders: Starting in 2025, taxpayers with scheduled appointments at Taxpayer Assistance Centers (TACs) can receive confirmations, reminders, and cancellation notices via text message.
• Fiscal Year Filers: If filing on a fiscal year basis, taxpayers must enter the beginning and ending months of their fiscal year on Form 1040-SS and use the tax rate and annual earnings limit applicable at the start of the fiscal year.

Example Scenario Showing How the Form 1040SS Changes Apply

Changes to the Qualifying Children section

• Martha Johnson, a single parent from Austin, Texas, claims her 12-year-old daughter, Emily, as a qualifying child for 2025. Previously, she had to write information in unnumbered spaces on Form 1040SS. Now, the form includes numbered rows for each qualifying child, making it easier to organize and verify information.
• The change helps prevent errors by clearly separating each child’s details, such as name, SSN, and relationship, in distinct rows.
• Martha now fills out row 1 for Emily, entering her SSN and age, which ensures the IRS can quickly process her claim for the Child Tax Credit without confusion.
• Before, she might have accidentally mixed up details; now, the structured format reduces filing mistakes and speeds up processing.

Write-in information

• David Chen, a self-employed contractor from Seattle, WA, has multiple small business deductions that don’t fit standard lines on Form 1040SS. In 2025, he uses the expanded line 6 to enter all his write-in deductions, such as office supplies and mileage, in dedicated entry spaces.
• Previously, he had to write these on a separate sheet or in cramped spaces, increasing the risk of errors or omissions.
• The new design allows him to list each deduction clearly with its amount, improving accuracy and reducing IRS inquiries.
• David finds the updated format more user-friendly and less confusing when reviewing his return before submission.

Social Security Number required to claim the Additional Child Tax Credit (ACTC)

• Lisa and Carlos Rodriguez from Miami, FL, file jointly for 2025 and claim their 8-year-old son, Mateo, for the ACTC. Lisa has a valid SSN issued before the return’s due date. Carlos has an ITIN, which is acceptable since only one filer needs a valid SSN for the credit.
• Before 2025, they could claim the ACTC even if both had ITINs. Now, because Lisa has a valid SSN, they qualify for the credit.
• If Carlos had not had an SSN or ITIN issued before the due date, they would not qualify for the ACTC.
• This change ensures only taxpayers with proper identification can claim the credit, reducing fraud and improving IRS processing efficiency.

Death of a taxpayer

• After her husband Robert Lee passed away in January 2025, his wife Susan Lee files Form 1040SS for his 2025 return. She checks the “Deceased” box at the top of the form and enters Robert’s date of death (January 15, 2025) in the designated space.
• Previously, there was no clear place to indicate death on the form, which could lead to delays or misclassification by the IRS.
• By marking the form as deceased, Susan ensures the IRS processes Robert’s return correctly and avoids any penalties or misunderstandings about his tax status.
• The IRS will use this information to handle any refund or tax liability appropriately for a deceased taxpayer.

Electronic payments and direct deposit

• James Parker from Chicago, IL, owes $1,800 in taxes for 2025. Instead of mailing a check, he uses DirectPay through his bank account to pay electronically.
• The IRS encourages electronic payments to reduce processing time and avoid delays. James receives confirmation instantly and avoids late fees.
• If he had chosen to pay by check, it could take weeks to process. By using direct deposit for refunds and electronic payments for taxes owed, James saves time and reduces risk of error.
• He also uses IRS.gov/Payments to explore other options like digital wallets or credit cards for future payments.

Maximum income subject to social security tax for 2025

• Anna Kim, a freelance graphic designer from Portland, OR, earned $178,000 in self-employment income in 2025. The maximum income subject to Social Security tax is $176,100 for that year.
• She must pay Social Security tax on the first $176,100 of her income. The remaining $1,900 is not subject to Social Security tax but is still subject to Medicare tax.
• Previously, if she earned $175,000 in 2024 (with a lower limit), she would have paid tax on all of it. In 2025, she pays tax on less due to the higher threshold.
• This change reduces her overall self-employment tax burden slightly compared to prior years.

Maximum income subject to social security tax for 2026

• Michael Torres from Dallas, TX, expects to earn $185,000 in self-employment income in 2026. The maximum income subject to Social Security tax will be $184,500.
• He will pay Social Security tax on $184,500 of his income. The remaining $500 is exempt from Social Security tax but still subject to Medicare tax.
• This increase from $176,100 in 2025 means Michael will pay more Social Security tax in 2026 than he did in 2025 due to higher earnings and a higher threshold.
• The change reflects inflation adjustments and helps maintain Social Security funding levels.

Optional methods to figure net earnings

• Sarah Liu runs a small online tutoring business and earned $7,500 in net self-employment income in 2025. She qualifies for the optional method to figure net earnings because her income is below $7,240? No — wait: she earns $7,500 which exceeds $7,240. So she cannot use the optional method.
• The optional method is available only if net earnings are $7,240 or less. Sarah must use the standard method to calculate her self-employment tax.
• If she had earned $7,000 instead, she could have used the optional method by multiplying her net earnings by 92.35% (the standard rate) and then applying the self-employment tax rate.
• This simplifies calculations for low-income earners but does not apply to Sarah due to her higher income.

New option for scheduled appointments at Taxpayer Assistance Centers (TACs)

• Carlos Mendez from San Antonio schedules an appointment at his local TAC to help file his Form 1040SS. He opts to receive appointment confirmations and reminders via text message on his mobile phone.
• Previously, he would have received emails or phone calls only. The new text message option makes it easier for him to manage his schedule and avoid missing his appointment.
• He receives a text reminder two days before his appointment and another reminder one hour before arriving at the center.
• This improvement helps taxpayers like Carlos stay organized and reduces no-shows at TACs.

Related Schedules and Forms for Form 1040SS

• Form 8888- Used to specify how a refund should be distributed and is attached to Form 1040SS if the taxpayer requests a refund split or direct deposit.
• Schedule SE (Form 1040) – Required to report self-employment tax. Attach to Form 1040SS if you have net earnings from self-employment. Enter the amount from Schedule SE, Part I, line 12, on Form 1040SS, line 3.
• Schedule C (Form 1040) – Required if you have profit or loss from a nonfarm business operated as a sole proprietor. Attach to Form 1040SS if applicable.
• Schedule F (Form 1040) – Required if you have farm income and expenses. Attach to Form 1040SS if applicable.
• Schedule H (Form 1040) – Required if you paid household employees cash wages of $2,800 or more in 2025, or $1,000 or more in any calendar quarter of 2024 or 2025. Attach to Form 1040SS, line 4.
• Form 8959 – Required to report Additional Medicare Tax. Attach to Form 1040SS for lines 5 and 11a.
• Form 4137 – Required if you received cash and charge tips of $20 or more in a calendar month and did not report all tips to your employer. Attach to Form 1040SS, line 6a.
• Form W-2AS, W-2CM, W-2GU, W-2VI, or 499R-2/W-2PR – Required if you had more than one employer and total wages exceeded $176,100 in 2025. Attach to Form 1040SS, line 11b.

Common Mistakes to Avoid on Form 1040SS

• Filing too soon: Submitting your return before receiving all tax documents can lead to errors. Ensure you have all Forms W-2, 1099-R, and other income statements before filing.
• Incorrect filing status: Choosing the wrong filing status (e.g., single vs. married) can result in incorrect tax calculations. Verify your status using IRS guidelines.
• Misspelled names or missing SSNs: All names and taxpayer identification numbers must match exactly as they appear on Social Security cards. Name changes must be reported to the SSA.
• Incorrect bank account information: If requesting direct deposit for a refund, double-check routing and account numbers to avoid delays or misdirected funds.
• Unsigned return: A return without a signature is invalid. Both spouses must sign and date a joint return unless an exception applies (e.g., military personnel with power of attorney).
• Missing or incorrect income reporting: Ensure all income, including wages, dividends, interest, and digital asset transactions, is reported accurately on the correct lines.
• Skipping required attachments: Attach all necessary forms such as Form W-2 (Copy B), Form 1099-R, and Schedule C or F for self-employment income.
• Incorrect deductions or credits: Verify that deductions and credits are calculated correctly and supported by documentation. New changes for 2026 may affect eligibility.
• Not using e-file: Filing electronically reduces errors and speeds up processing. The system often catches mistakes before submission.
• Failure to pay owed taxes: If you owe tax, make sure to pay by the due date using available methods to avoid penalties and interest.

Helpful Tips for Completing Form 1040SS

Who Should Use Form 1040SS

• Form 1040SS is designed for bona fide residents of Puerto Rico who are self-employed and wish to claim the Additional Child Tax Credit (ACTC).
• It is available in both English and Spanish (Formulario 1040-SS (SP)) .

Key Best Practices

• Ensure you are a bona fide resident of Puerto Rico to qualify for excluding Puerto Rican source income from U.S. federal taxation.
• Only claim deductions and credits that apply to income reported on your U.S. tax return; you cannot claim them for excluded Puerto Rican income.
• For the 2025 tax year, the Additional Child Tax Credit (ACTC) is $1,700 per qualifying child, and you must file a federal return to claim it.
• If you have income from Puerto Rican sources that must be reported on your U.S. return, you may claim a foreign tax credit using Form 1116, adjusting for taxes allocable to excluded income.
• Always verify your residency status and consult Publication 570 or Topic no. 901 for guidance on allocating deductions and credits.

Source

• For more up-to-date information visit https://www.irs.gov Government website.
• Refer to the Instructions for Form 1040SS for detailed information.