Self-Employment Tax

The self-employment tax rate on net earnings remains the same for calendar year 1998. 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 1998 has increased to $68,400. All net earnings of at least $400 are subject to the Medicare part.

Former insurance agents. Certain payments made to former insurance agents after 1997 by an insurance company for services performed for that company are exempt from self-employment tax if all the following requirements are met.

The amounts are received after the agent's agreement to perform services for the company has ended.

• The agent performs no services for the company after the service ends and before the end of the tax year.
• The agent enters into a covenant not to compete against the company for at least the 1-year period beginning on the date the service agreement ended.
• The amount of the payment depends primarily on policies sold by or credited to the account of the agent during the last year of the service agreement or on the extent to which those policies remain in force for some period after the service agreement ends, or both.
• The amount of the payment does not depend to any extent on the length of service or overall earnings from services performed for the company (regardless of whether eligibility for payment depends on the length of service).

More information. For more information on self-employment tax, see Publication 533, Self-Employment Tax.

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