Tax Preparation Help  
Instructions for Form 1040-SS 2006 Tax Year

General Instructions

This is archived information that pertains only to the 2006 Tax Year. If you
are looking for information for the current tax year, go to the Tax Prep Help Area.

What's New

  • For 2006, the maximum amount of self-employment income subject to social security tax is $94,200.

  • The rules for determining whether you are a bona fide resident of a possession have changed. For details, see Pub. 570, Tax Guide for Individuals With Income From U.S. Possessions.

  • If you are a debtor in a chapter 11 bankruptcy case, you must pay self-employment tax on your net earnings from self-employment, even though the bankruptcy estate pays the income tax on your net profit. See Chapter 11 Bankruptcy Cases on page 3.

  • If you paid the federal excise tax on your U.S. long distance or bundled telephone service, you may be able to request a credit. See the instructions for line 10 on page 4.

Purpose of Form

Residents of the U.S. Virgin Islands (USVI), Guam, American Samoa, the Commonwealth of the Northern Mariana Islands (CNMI), and the Commonwealth of Puerto Rico (Puerto Rico) use Form 1040-SS to:

  • Report net earnings from self-employment and pay self-employment (SE) tax. The Social Security Administration (SSA) uses this information to figure your benefits under the social security program. SE tax applies no matter how old you are and even if you already are receiving social security or Medicare benefits.

  • Report and pay household employment taxes.

  • Report and pay employee social security and Medicare tax on unreported tips or uncollected social security and Medicare tax on tips or group-term life insurance (see the instructions for Part I, line 5, on page 4).

  • Claim excess social security tax withheld.

  • Claim the additional child tax credit (bona fide residents of Puerto Rico only).

  • Claim the health coverage tax credit (bona fide residents of Puerto Rico only).

You may also be required to file an income tax return with the government of Guam, American Samoa, the USVI, the CNMI, or Puerto Rico. Check with your local tax office for more details.

Additional Information

See the instructions for Schedule C (Form 1040), Profit or Loss From Business, and Schedule F (Form 1040), Profit or Loss From Farming, for information on business and farm income and expenses. Also, see Pub. 334, Tax Guide for Small Business (For Individuals Who Use Schedule C or C-EZ), and Pub. 225, Farmer's Tax Guide.

For details on 2006 tax law changes, see Pub. 553, Highlights of 2006 Tax Changes.

If you expect to owe SE tax of $1,000 or more for 2007, you may have to make estimated tax payments. Use Form 1040-ES, Estimated Tax for Individuals, to make estimated tax payments.

Who Must File

You must file Form 1040-SS if:

  1. You, or your spouse if filing a joint return, had net earnings from self-employment (from other than church employee income) of $400 or more (or you had church employee income of $108.28 or more—see Church Employees on page 2);

  2. You do not have to file Form 1040 with the United States; and

  3. You are a resident of:

    1. Guam,

    2. American Samoa,

    3. The USVI,

    4. The CNMI, or

    5. Puerto Rico. (You may file either Form 1040-PR or Form 1040-SS.)

Tip
Even if you have a loss or little income from self-employment, it may benefit you to file Form 1040-SS and use either "optional method" in Part VI. See page 7.

If (2) and (3) above apply, you also must file Form 1040-SS (or Form 1040-PR in Spanish if you are a resident of Puerto Rico) to:

  • Report and pay household employment taxes.

  • Report and pay employee social security and Medicare tax on unreported tips or uncollected social security and Medicare tax on tips or group-term life insurance (see the instructions for Part I, line 5, on page 4).

  • Claim excess social security tax withheld.

  • Claim the additional child tax credit (bona fide residents of Puerto Rico only).

  • Claim the health coverage tax credit (bona fide residents of Puerto Rico only).

When To File

If you file on a calendar year basis, file by April 16, 2007. If you file on a fiscal year basis, file by the 15th day of the 4th month after the close of your fiscal year.

Where To File

Internal Revenue Service Center, Austin, TX 73301-0215.

Amount You Owe

Pay by Check or Money Order

Enclose your check or money order for the full amount due with Form 1040-SS. Make it payable to the “United States Treasury.” Do not send cash. Enter “2006 Form 1040-SS” and your name, address, daytime phone number, and social security number (SSN) on your payment. If you are filing a joint return, enter the SSN shown first on your Form 1040-SS.

To help process your payment, enter the amount on the right side of the check like this: $ 1040-SS.XX. Do not use dashes or lines (for example, do not enter “$ 1040-SS-” or “$ 1040-SSxx/100”).

Pay Electronically

Pay by credit card.   You can use your American Express® Card, Discover® Card, MasterCard® card, or Visa® card. To pay by credit card, call toll-free or visit the website of either service provider listed below and follow the instructions. A convenience fee will be charged by the service provider based on the amount you are paying. Fees may vary between the providers. You will be told what the fee is during the transaction and you will have the option to either continue or cancel the transaction. You can also find out what the fee will be by calling the provider's toll-free automated customer service number or visiting the provider's website shown below. If you pay by credit card before filing your return, enter on page 1 of Form 1040-SS in the upper left corner the confirmation number you were given at the end of the transaction and the amount you charged (not including the convenience fee).

Official Payments Corporation
1-800-2PAY-TAX SM (1-800-272-9829)
1-877-754-4413 (Customer Service)
www.officialpayments.com

Link2Gov Corporation
1-888-PAY-1040 SM (1-888-729-1040)
1-888-658-5465 (Customer Service)
www.PAY1040.com

Pay by Electronic Federal Tax Payment System (EFTPS).   EFTPS is a free tax payment system designed with all taxpayers in mind. Online or by phone, you input your tax payment information electronically and you are done. EFTPS offers you convenience. Through EFTPS, you can schedule one-time or recurring payments for withdrawal from your checking or savings account up to 365 days in advance. You can also modify or cancel payments up to 2 business days before the scheduled withdrawal date. To use EFTPS, you must enroll. Enroll online at www.eftps.gov or call 1-800-555-4477 to receive an enrollment form and instructions by mail. TTY/TDD help is available by calling 1-800-733-4829.

Third Party Designee

If you want to allow a friend, family member, or any other person you choose to discuss your 2006 tax return with the IRS, check the “Yes” box in the Third Party Designee area on page 1 of Form 1040-SS. Also enter the designee's name, phone number, and any five numbers the designee chooses as his or her personal identification number (PIN). But if you want to allow the paid preparer who signed your return to discuss it with the IRS, just enter “Preparer” in the space for the designee's name. You do not have to provide the other information requested.

If you check the “Yes” box, you, and your spouse if filing a joint return, are authorizing the IRS to call the designee to answer any questions that may arise during the processing of your return. You are also authorizing the designee to:

  • Give the IRS any information that is missing from your return,

  • Call the IRS for information about the processing of your return or the status of your refund or payment(s),

  • Receive copies of notices or transcripts related to your return, upon request, and

  • Respond to certain IRS notices about math errors, offsets, and return preparation.

You are not authorizing the designee to receive any refund check, bind you to anything (including any additional tax liability), or otherwise represent you before the IRS. If you want to expand the designee's authorization, see Pub. 947, Practice Before the IRS and Power of Attorney.

The authorization will automatically end no later than the due date (without regard to extensions) for filing your 2007 tax return. This is April 15, 2008, for most people. If you wish to revoke the authorization before it ends, see Pub. 947.

Signature and Date

Sign and date your return. It is not valid unless you sign it. If you are filing a joint return, your spouse must also sign. If your spouse cannot sign the return, see Pub. 501, Exemptions, Standard Deduction, and Filing Information.

Generally, anyone you pay to prepare your return must sign it in the space provided. The preparer must give you a copy of the return for your records. Someone who prepares your return but does not charge you should not sign your return.

If you have someone prepare your return, you are still responsible for the correctness of the return.

Daytime Phone Number

Providing your daytime phone number may help speed the processing of your return. If we have questions about items on your return and you can answer our questions over the phone, we may be able to continue processing your return without mailing you a letter. If you are filing a joint return, you may enter either your or your spouse's daytime phone number.

How To Get Forms and Publications

By Internet

You can access the IRS website 24 hours a day, 7 days a week, at
www.irs.gov to download forms, instructions, and publications.

By Phone

If you are a resident of the U.S. Virgin Islands or Puerto Rico, you can order forms and publications by calling 1-800-TAX-FORM (1-800-829-3676).

By Mail

You can order forms and publications by sending your order to:

National Distribution Center
P.O. Box 8903
Bloomington, IL 61702-8903

In Person

You can get forms and publications at the following walk-in sites.

The following addresses are subject to change.

Puerto Rico   

U.S. Internal Revenue Service
7 Tabonuco Street, Suite 120
San Patricio Office Center
Guaynabo, PR 00966

USVI   

V.I. Bureau of Internal Revenue
Federal Building, Room 216
5500 Veterans Drive
Charlotte Amalie, St. Thomas, VI 00802

V.I. Bureau of Internal Revenue
9601 Estate Thomas
Charlotte Amalie, St. Thomas, VI 00802

V.I. Bureau of Internal Revenue
4008 Estate Diamond
Christiansted, St. Croix, VI 00820

American Samoa   

American Samoa Government
Tax Division, Suite 111
Pago Plaza
Pago Pago, AS 96799

American Samoa Government
Tax Office, EOB Building
Utulei, AS 96799

CNMI   

Division of Revenue and Taxation
CNMI
Central Office, Civic Center
Saipan, MP 96950

Name and SSN

To ensure proper credit to your social security account, enter your name and SSN, and your spouse's if filing a joint return, exactly as shown on your social security card. If you do not have an SSN, get Form SS-5, Application for a Social Security Card, from an SSA district office.

Who Must Pay SE Tax?

Self-Employed Persons

You must pay SE tax if you had net earnings of $400 or more as a self-employed person. If you are in business for yourself or you are a farmer, you are self-employed.

You must also pay SE tax on your share of certain partnership income and your guaranteed payments. See Partnership Income or Loss beginning on page 5.

Church Employees

If you had church employee income of $108.28 or more, you must pay SE tax on that income. Church employee income is wages you received as an employee (other than as a minister or member of a religious order) of a church or qualified church-controlled organization that has a certificate in effect electing exemption from employer social security and Medicare taxes.

If your only income subject to self-employment tax is church employee income, skip lines 1 through 4b in Part V. Enter -0- on line 4c and go to line 5a.

Ministers and Members of Religious Orders

In most cases, you must pay SE tax on salaries and other income for services you performed as a minister, a member of a religious order who has not taken a vow of poverty, or a Christian Science practitioner. But if you filed Form 4361, Application for Exemption From Self-Employment Tax for Use by Ministers, Members of Religious Orders and Christian Science Practitioners, and received IRS approval, you will be exempt from paying SE tax on those net earnings. If you had no other income subject to SE tax, you are not required to file Form 1040-SS. But if you had other earnings of $400 or more subject to SE tax, see Part V, line A.

If you must pay SE tax, include this income on Part IV, line 1. But do not report it on Part V, line 5a; it is not considered church employee income.

Also include on Part IV, line 1:

  • The rental value of or allowance for a home furnished to you (including payments for utilities), and

  • The value of meals and lodging provided to you, your spouse, and your dependents for your employer's convenience.

However, do not include on Part IV, line 1:

  • Retirement benefits you received from a church plan after retirement, or

  • The rental value of or allowance for a home furnished to you (including payments for utilities) after retirement.

If you were a duly ordained minister who was a church employee and you must pay SE tax, any unreimbursed business expenses you incurred as a church employee are allowed only as an itemized deduction on your income tax return, not as a deduction on Form 1040-SS. Report in Part IV your income and expenses from performing services as a minister. Enter the net amount on Part V, line 2.

For details, see Pub. 517, Social Security and Other Information for Members of the Clergy and Religious Workers.

caution
If you have ever filed Form 2031 to elect social security coverage on your earnings as a minister, you cannot revoke that election.

Members of Certain Religious Sects

If you have conscientious objections to social security insurance because of your membership in and belief in the teachings of a religious sect recognized as being in existence at all times since December 31, 1950, and which has provided a reasonable level of living for its dependent members, you can request exemption from SE tax by filing Form 4029, Application for Exemption From Social Security and Medicare Taxes and Waiver of Benefits. If you filed Form 4029 and have received IRS approval, do not file Form 1040-SS. See Pub. 517 for details.

Employees of Foreign Governments or International Organizations

You must pay SE tax on income you earned as a U.S. citizen or a resident of Puerto Rico employed by a foreign government (or, in certain cases, by a wholly owned instrumentality of a foreign government or an international organization under the International Organizations Immunities Act) for services performed in the United States, Puerto Rico, Guam, American Samoa, the USVI, or the CNMI. Report income from this employment on Part IV, line 1. If you performed services elsewhere as an employee of a foreign government or an international organization, those earnings are exempt from SE tax.

Commonwealth or Territory Residents Living Abroad

Generally, if you are a resident of Guam, American Samoa, the USVI, the CNMI, or Puerto Rico living abroad, you must pay SE tax.

Exception.   The United States has social security agreements with many countries to eliminate dual taxes under two social security systems. Under these agreements, you must generally pay social security and Medicare taxes only to the country you live in.

  The United States now has social security agreements with the following countries: Australia, Austria, Belgium, Canada, Chile, Finland, France, Germany, Greece, Ireland, Italy, Japan, Luxembourg, the Netherlands, Norway, Portugal, South Korea, Spain, Sweden, Switzerland, and the United Kingdom. Additional agreements are expected in the future.

  If you have questions about international social security agreements, you can:
  1. Visit the Social Security Administration (SSA) website at www.socialsecurity.gov/international,

  2. Call the SSA Office of International Programs at:

    1. 410-965-0144 (not toll free) for questions on benefits under agreements, or

    2. 410-965-3549 (not toll free) for questions on the coverage rules of the agreements, or

  3. Write to Social Security Administration, Office of International Programs, P.O. Box 17741, Baltimore, MD 21235-7741. (Do not send Form 1040-SS to this address. Instead, see Where To File on page 1.)

  Even if you do not have to pay self-employment tax because of a social security agreement, you may still have to file a tax return with the Internal Revenue Service.

Chapter 11 Bankruptcy Cases

While you are a debtor in a chapter 11 bankruptcy case, your net profit or loss from self-employment will be included on the income tax return (Form 1041) of the bankruptcy estate. However, you—not the bankruptcy estate—are responsible for paying self-employment tax on your net earnings from self-employment.

Enter on the dotted line to the left of line 3 of Form 1040-SS, Part V, “Chap. 11 bankruptcy income” and the amount of your net profit or (loss). Combine that amount with the total of lines 1 and 2 (if any) and enter the result on line 3.

For other reporting requirements, see page 22 in the instructions for Form 1040.

More Than One Business

If you were a farmer and had at least one other business or you had two or more nonfarm businesses, your net earnings from self-employment are the combined net earnings from all of your businesses. If you had a loss in one business, it reduces the income from another. Complete and file only one Form 1040-SS for any 1 year. Attach a separate Part III or Part IV for each trade or business, and include the net earnings in Part V.

Joint returns.   If both you and your spouse have self-employment income from a farm or nonfarm business, each of you must complete and file a separate Part III or Part IV. Be sure to enter at the top of each Part III or Part IV the name and SSN of the spouse who owns the business. Each of you must also complete a separate Part V.

Community Income

In most cases, if any of the income from a business (including farming) is community income, all of the income from that business is considered self-employment earnings of the spouse who carried on the trade or business. The facts in each situation will determine which spouse carried on the trade or business. If you and your spouse are partners in a partnership, see Partnership Income or Loss beginning on page 5.

Fiscal Year Filers

If your tax year is a fiscal year, use the tax rate and earnings base that apply at the time the fiscal year begins. Do not prorate the tax or earnings base for a fiscal year that overlaps the date of a rate or earnings base change.

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