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Lev, Tax Advisor
Category: Tax
Satisfied Customers: 28081
Experience:  Taxes, Immigration, Labor Relations
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Is income from a personal service contract subject to self

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Is income from a personal service contract subject to self employment tax?

Lev :

Hi and welcome to Just Answer!
According to section 1402 -
The term “net earnings from self-employment” means the gross income derived by an individual from any trade or business carried on by such individual, less the deductions allowed by this subtitle which are attributable to such trade or business...
So - based on the above - NET income from a personal service contract (after deducting allowed business expenses) will be subject of self-employment taxes.


OK, I received personal service income on behalf of my father. This "income" is money that is to be used for his benefit over his lifetime. It is not a trade or business in my opinion; nor obviously one intended for profit. I saw that were some exceptions; but could not find any specific to this.

Lev :

If you are paid for providing services - that is your self-employment income.
If you received payment on behalf of my father - and your father provided services - that is his self-employment income.
If you have no profit - means your deductions are more than income and net income is negative or less than $400 - there is no self-employment tax liability.


OK. Sounds like there's no way out from the SE Tax like a "director's fee" or notary services.

Lev and 4 other Tax Specialists are ready to help you
Fees received for services performed as a notary public are reported on Schedule C but are not subject to self-employment tax as such payments are specifically excluded.
"Director's fee" are subject of self-employment taxes in most situations - they are paid for services actually rendered (the directors actually attended the meetings) - and as such are subject of SE tax.

Your activities (services) may be classified as business or as hobby.
If you have no intention to make any profit and you believe that is your hobby - your occasional income would not be subject of self-employment taxes.
That would be true unless the Tax Court rules differently.

Generally - the IRS presumes that an activity is carried on for profit if it makes a profit during at least three of the last five tax years, including the current year.
So - if you regularly make profit - there is a risk the IRS disagree with your treatment of your activity as a hobby - and you might be expected to defend your position in the Court.
Sorry if you expected differently.

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