Line 7

If you, or your spouse if filing a joint return, had more than one employer for 2002 and total wages of more than $84,900, too much social security tax may have been withheld. You can take a credit on this line for the amount withheld in excess of $5,263.80. But if any one employer withheld more than $5,263.80, you must ask that employer to refund the excess to you. You cannot claim it on Form 1040-SS. Figure this amount separately for you and your spouse. You must attach Form W-2AS, W-2CM, W-2GU, W-2VI, or 499R-2/W-2PR.

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

If you were a bona fide resident of Puerto Rico and you qualify to claim the additional child tax credit, complete Part I, line 2; Part II; and the worksheet on page 5 of these instructions to figure the amount of your credit.

You must have three or more qualifying children to claim the additional child tax credit.

Qualifying for the Credit

You may be able to claim the additional child tax credit if all three of the following apply.

1. You were a bona fide resident of Puerto Rico.
2. Social security and Medicare taxes were withheld from your wages or you paid self-employment tax.
3. You had three or more qualifying children (defined below).

Qualifying child.   A qualifying child for purposes of the additional child tax credit is a child who:

• Would qualify as your dependent (explained on this page), and
• Was under age 17 at the end of 2002, and
• Is (a) your son, daughter, adopted child, stepchild, or grandchild; (b) your brother, sister, stepbrother, stepsister, or a descendant of your brother, sister, stepbrother, or stepsister (for example, your niece or nephew), whom you cared for as your own child; or (c) a foster child (that is, any child placed with you by an authorized placement agency whom you cared for as your own child), and
• Is a U.S. citizen or resident alien.

A child placed with you by an authorized placement agency for legal adoption is an adopted child even if the adoption is not final. An authorized placement agency includes any person authorized by state law to place children for legal adoption.

A grandchild is any descendant of your son, daughter, adopted child, or stepchild and includes your great-grandchild, great-great-grandchild, etc.

Qualifying as your dependent.   Generally, a child would qualify as your dependent if you provided over half of the child's support in 2002. However, special rules apply for children of divorced or separated parents and to married children. For details, see Pub. 501.

Information about your qualifying child.   On Part I, line 2, enter the qualifying child's name, social security number, and relationship to you. If you have more than six qualifying children, attach a statement to Form 1040-SS with the required information.

Line 1

For purposes of the additional child tax credit, you must report all of your income derived from sources within Puerto Rico that is excluded from U.S. tax because you were a bona fide resident of Puerto Rico. This includes items such as wages, interest, dividends, taxable pensions and annuities, and taxable social security benefits. Also include any profit or (loss) from Part III, line 36, and Part IV, line 27. For more information on these and other types of income to include on line 1, see the Form 1040 instructions.

Additional Child Tax Credit Worksheet - Part II, Line 3

Keep for Your Records

1.	Do you have three or more qualifying children?
	No. Stop. You cannot claim the credit. Yes. Go to line 2.
2.	Number of qualifying children: _______× $600. Enter the result		2.
3.	Enter the amount from Part II, line 1	3.
4.	Enter the amount shown below for your filing status	4.
	· Married filing jointly - $110,000 · Single - $75,000 · Married filing separately - $55,000
5.	Is the amount on line 3 more than the amount on line 4?
	No. Leave line 5 blank. Enter -0- on line 6. Yes. Subtract line 4 from line 3. If the result is not a multiple of $1,000, increase it to the next multiple of $1,000 (for example, increase $425 to $1,000, increase $1,025 to $2,000, etc.)	5.
6.	Multiply the amount on line 5 by 5% (.05)		6.
7.	Is the amount on line 2 more than the amount on line 6?
	No. Stop. You cannot claim the credit. Yes. Subtract line 6 from line 2		7.
8.	Enter one-half of the amount from Part V, line 12, here	8.
9.	Enter the total of any: · Amount from Part II, line 2, plus · Employee social security and Medicare tax on tips not reported to employer and shown on the dotted line next to Part I, line 5, plus · Uncollected employee social security and Medicare tax shown on the dotted line next to Part I, line 5	9.
10.	Add lines 8 and 9	10.
11.	Enter the amount, if any, from Part I, line 7	11.
12.	Is the amount on line 10 more than the amount on line 11?
	No. Stop. You cannot claim the credit. Yes. Subtract line 11 from line 10		12.
13.	Additional child tax credit. Enter the smaller of line 7 or line 12 here and on Form 1040-SS, Part II, line 3		13.

Part V - Self-Employment Tax

If you are filing a joint return and both you and your spouse have income subject to self-employment tax, you must each complete a separate Part V.

What Is Included in Net Earnings From Self-Employment

Generally, net earnings include your net profit from a farm or nonfarm business. If you were a partner in a partnership, see the following instructions.

Partnership Income or Loss

When figuring your total net earnings from self-employment, include your share of partnership income or loss attributable to a trade or business and any guaranteed payments for services or the use of capital. However, if you were a limited partner, include only guaranteed payments for services you actually rendered to or on behalf of the partnership.

If you were a general partner, reduce lines 1 and 2 of Part V for any section 179 expense deduction, oil or gas depletion, and unreimbursed partnership expenses.

If your partnership was engaged solely in the operation of a group investment program, earnings from the operation are not self-employment earnings for either the general or limited partners.

If a partner died and the partnership continued, include in self-employment income the deceased partner's distributive share of the partnership's ordinary income or loss through the end of the month in which he or she died. See section 1402(f).

If you were married and both you and your spouse were partners in a partnership, each of you must pay SE tax on your own share of the partnership income. If you are filing jointly, you must each complete a separate Part V. Otherwise, each of you must file a separate Form 1040-SS.

Share Farming

You are considered self-employed if you produced crops or livestock on someone else's land for a share of the crops or livestock produced (or a share of the proceeds from the sale of them). For details, see Pub. 225, Farmer's Tax Guide.

Other Income and Losses Included in Net Earnings From Self-Employment

• Rental income from a farm if, as landlord, you materially participated in the production or management of the production of farm products on this land. This income is farm earnings. To determine if you materially participated in farm management or production, do not consider the activities of any agent who acted for you. The material participation tests are explained in Pub. 225.
• Cash or a payment-in-kind from the Department of Agriculture for participating in a land diversion program.
• Payments for the use of rooms or other space when you also provided substantial services. Examples are hotel rooms, boarding houses, tourist camps or homes, parking lots, warehouses, and storage garages.
• Income from the retail sale of newspapers and magazines if you were age 18 or older and kept the profits.
• Amounts received by current or former self-employed insurance agents and salespersons that are:
  1. Paid after retirement but figured as a percentage of commissions received from the paying company before retirement,
  2. Renewal commissions, or
  3. Deferred commissions paid after retirement for sales made before retirement.
  However, certain termination payments received by former insurance salespersons are not included in net earnings from self-employment (as explained under Termination payments on page 7).
• Income of certain crew members of fishing vessels with crews of normally fewer than 10 people. See Pub. 595, Tax Highlights for Commercial Fishermen, for details.
• Fees as a state or local government employee if you were paid only on a fee basis and the job was not covered under a Federal-state social security coverage agreement.
• Interest received in the course of any trade or business, such as interest on notes or accounts receivable.
• Fees and other payments received by you for services as a director of a corporation.
• Recapture amounts under sections 179 and 280F included in gross income because the business use of the property dropped to 50% or less. Do not include amounts recaptured on the disposition of property. See Form 4797, Sales of Business Property.
• Fees you received as a professional fiduciary. This may also apply to fees paid to you as a nonprofessional fiduciary if the fees relate to active participation in the operation of the estate's trade or business or the management of an estate that required extensive management activities over a long period of time.
• Gain or loss from section 1256 contracts or related property by an options or commodities dealer in the normal course of dealing in or trading section 1256 contracts.

Income and Losses Not Included in Net Earnings From Self-Employment

• Salaries, fees, etc., subject to social security or Medicare tax that you received for performing services as an employee, including services performed as a public official (except as a fee basis government employee as explained under Other Income and Losses Included in Net Earnings From Self-Employment on this page).
• Fees received for services performed as a notary public. If you have other earnings of $400 or more subject to SE tax, on the dotted line next to line 3 of Part V, write Exempt-Notary and, in parentheses, the amount of your net profit as a notary public from line 2. Subtract that amount from the total of lines 1 and 2 and enter the result on line 3.
• Income you received as a retired partner under a written partnership plan that provides lifelong periodic retirement payments if you had no other interest in the partnership and did not perform services for it during the year.
• Income from real estate rentals if you did not receive the income in the course of your trade or business as a real estate dealer.
• Income from farm rentals (including rentals paid in crop shares) if, as landlord, you did not materially participate in the production or management of the production of farm products on the land. See Pub. 225 for details.
• Dividends on shares of stock and interest on bonds, notes, etc., if you did not receive the income in the course of your trade or business as a dealer in stocks or securities.
• Gain or loss from:
  1. The sale or exchange of a capital asset;
  2. The sale, exchange, involuntary conversion, or other disposition of property unless the property is stock in trade or other property that would be includible in inventory, or held mainly for sale to customers in the ordinary course of the business; or
  3. Certain transactions in timber, coal, or domestic iron ore.
• Net operating losses from other years.
• Termination payments you received as a former insurance salesperson if all of the following conditions are met.
  1. The payment was received from an insurance company because of services you performed as an insurance salesperson for the company.
  2. The payment was received after termination of your agreement to perform services for the company.
  3. You did not perform any services for the company after termination and before the end of the year in which you received the payment.
  4. You entered into a covenant not to compete against the company for at least a 1-year period beginning on the date of termination.
  5. The amount of the payment depended primarily on policies sold by or credited to your account during the last year of the agreement, or the extent to which those policies remain in force for some period after termination, or both.
  6. The amount of the payment did not depend to any extent on length of service or overall earnings from services performed for the company (regardless of whether eligibility for the payment depended on length of service).

Line 8b

If you received tips of $20 or more in any month and did not report the full amount to your employer, you must file Form 4137, Social Security and Medicare Tax on Unreported Tip Income. Disregard the references to Form 1040 shown on Form 4137. Also see the instructions for Part I, line 5, on page 4. Enter on line 8b the amount from Form 4137, line 9.

Part VI - Optional Methods To Figure Net Earnings

The optional methods may give you credit toward your social security coverage even though you have a loss or a small amount of income from self-employment. But the optional methods may require you to pay SE tax when you would otherwise not be required to pay.

If you are filing a joint return and both you and your spouse choose to use an optional method to figure net earnings from self-employment, you must each complete and attach a separate Part VI.

Note:   Using the optional methods may qualify bona fide residents of Puerto Rico to claim the additional child tax credit or give them a larger credit.

Farm Optional Method

You may use this method to figure your net earnings from farm self-employment if your gross farm income was $2,400 or less or your net farm profits (defined on this page) were less than $1,733. There is no limit on how many years you can use this method.

Under this method, you report on line 2, two-thirds of your gross farm income, up to $1,600, as your net earnings. This method can increase or decrease your net self-employment farm earnings even if the farming business had a loss.

You may change the method after you file your return. That is, you can change from the regular to the optional method or from the optional to the regular method.

For a farm partnership, figure your share of gross income based on the partnership agreement. With guaranteed payments, your share of the partnership's gross income is your guaranteed payments plus your share of the gross income after it is reduced by all guaranteed payments made by the partnership. If you were a limited partner, include only guaranteed payments for services you actually rendered to or on behalf of the partnership.

Net farm profits is the total of the amounts from Part III, line 36, and your distributive share from farm partnerships.

Nonfarm Optional Method

You may be able to use this method to figure your net earnings from nonfarm self-employment if your net nonfarm profits (defined on this page) were less than $1,733 and also less than 72.189% of your gross nonfarm income. To use this method, you also must be regularly self-employed. You meet this requirement if your actual net earnings from self-employment were $400 or more in 2 of the 3 years preceding the year you use the nonfarm method. The net earnings of $400 or more could be from either farm or nonfarm earnings or both. The net earnings include your distributive share of partnership income or loss subject to SE tax. Use of this method is limited to 5 years, which do not have to be consecutive.

Under this method, you report on line 4, two-thirds of your gross nonfarm income, up to $1,600, as your net earnings. But you may not report less than your actual net earnings from nonfarm self-employment.

You may change the method after you file your return. That is, you can change from the regular to the optional method or from the optional to the regular method.

Figure your share of gross income from a nonfarm partnership in the same manner as a farm partnership. See Farm Optional Method on this page for details.

Net nonfarm profits is the total of the amounts from Part IV, line 27, and your distributive share from other than farm partnerships.

Using Both Optional Methods

If you can use both methods, you may report less than your total actual net earnings from farm and nonfarm self-employment, but you cannot report less than your actual net earnings from nonfarm self-employment alone.

If you use both methods to figure net earnings from self-employment, you cannot report more than $1,600 of net earnings from self-employment.

Disclosure, Privacy Act, and Paperwork Reduction Act Notice.

The IRS Restructuring and Reform Act of 1998, the Privacy Act of 1974, and Paperwork Reduction Act of 1980 require that when we ask you for information we must first tell you our legal right to ask for the information, why we are asking for it, and how it will be used. We must also tell you what could happen if we do not receive it and whether your response is voluntary, required to obtain a benefit, or mandatory under the law.

This notice applies to all papers you file with us, including this tax return. It also applies to any questions we need to ask you so we can complete, correct, or process your return; figure your tax; and collect tax, interest, or penalties.

Our legal right to ask for information is sections 6001, 6011, and 7651 and their regulations. They say that you must file a return or statement with the IRS and pay to the United States Treasury any tax for which you are liable. Your response is mandatory under these sections. Section 6109 requires that you provide your SSN on what you file. This is so we know who you are, and can process your return and other papers. You must fill in all parts of the tax form that apply to you.

You are not required to provide the information requested on a form that is subject to the Paperwork Reduction Act unless the form displays a valid OMB control number. Books or records relating to a form or its instructions must be retained as long as their contents may become material in the administration of any Internal Revenue law.

We ask for tax return information to carry out the tax laws of the United States. We need it to figure and collect the right amount of tax.

If you do not file a return, do not provide the information we ask for, or provide fraudulent information, you may be charged penalties and be subject to criminal prosecution. We may also have to disallow any deductions shown on the tax return. This could make the tax higher or delay any refund, and the calculation of your social security benefits may be affected. Interest may also be charged.

Generally, tax returns and return information are confidential, as stated in section 6103. However, section 6103 allows or requires the IRS to disclose or give the information shown on your tax return to others as described in the Code. For example, we may disclose your tax information to the SSA for use in calculating your social security benefits; to the Department of Justice, to enforce the tax laws, both civil and criminal; and to cities, states, the District of Columbia, U.S. commonwealths or possessions, and certain foreign governments to carry out their tax laws.

We may disclose your tax information to other persons as necessary to obtain information which we cannot get in any other way in order to determine the amount of or to collect the tax you owe. We may disclose your tax information to the Comptroller General of the United States to permit the Comptroller General to review the Internal Revenue Service. We may disclose your tax information to Committees of Congress; Federal, state, and local child support agencies; and to other Federal agencies for the purposes of determining entitlement for benefits or the eligibility for and the repayment of loans. We may also disclose this information to other countries under a tax treaty, or to Federal and state agencies to enforce Federal nontax criminal laws and to combat terrorism.

Keep this notice with your records. It may help you if we ask you for other information. If you have questions about the rules for filing and giving information, call or visit any IRS office.

The time needed to complete and file this form will vary depending on individual circumstances. The estimated average time is:

Recordkeeping	7 hr., 38 min.
Learning about the law or the form	37 min.
Preparing the form	3 hr., 20 min.
Copying, assembling, and sending the form to the IRS	1 hr., 3 min.

If you have comments concerning the accuracy of these time estimates or suggestions for making this form simpler, we would be happy to hear from you. You can write to the Tax Forms Committee, Western Area Distribution Center, Rancho Cordova, CA 95743-0001. Do not send the form to this address. Instead, see Where To File on page 1.

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