Methods for Computing Self-Employment Tax (continued)

Nonfarm Optional Method Tests

All of these tests must be met to use the nonfarm optional method:

• Net nonfarm profits must be less than both:
  • $8,186, and
  • 72.189% of gross nonfarm income
• Net earnings from self-employment are $400 or more in at least two of the three years before the year this method is used
• Taxpayer has used the nonfarm optional method less than five years; the lifetime limit for a taxpayer is five years

If all the tests are met, the taxpayer can report the smaller of: 2/3 of gross non-farm income or $7,560 minus any income reported using the farm optional method. Do not report less than the actual earnings from non-farm self-employment.