Purpose

The purpose of this publication is to help you understand self-employment tax. It explains:

• What self-employment tax is,
• Why you pay it,
• How you pay it,
• Who must pay it, and
• How to report it on your tax return.

How to use this publication. This publication is designed to be used with Schedule SE (Form 1040) and its instructions. Schedule SE is used to figure and report the self-employment tax. This publication may help you if you need more information than the form or instructions provide.

Important Changes

Tax rates and maximum net earnings for self-employment taxes. The self-employment tax rate on net earnings remains the same for tax year 2000 and 2001. This rate, 15.3%, is a total of 12.4% for social security (old-age, survivors, and disability insurance) and 2.9% for Medicare (hospital insurance).

The maximum amount subject to the social security part for tax years beginning in 2000 is $76,200. For 2001, that amount increases to $80,400. All your net earnings of at least $400 are subject to the Medicare tax.

Revocation of religious exemption. Ministers, members of religious orders not under vows of poverty, and Christian Science practitioners who previously elected exemption from social security coverage and self-employment tax now have a limited period of time to revoke that exemption. For more information, see Revocation of exemption from SE tax later under Minister or Member of Religious Order.

Photographs of missing children. The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child.

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