(1) That part of the net earnings from self-employment which is in excess of (A) For any taxable year ending prior to 1955, (i) $3,600, minus (ii) the amount of the wages paid to such individual during the taxable year; and (B) For any taxable year ending after 1954 and prior to 1959, (i) $4,200, minus (ii) the amount of the wages paid to such individual during the taxable year; and (C) For any taxable year ending after 1958 and prior to 1966, (i) $4,800, minus (ii) the amount of the wages paid to such individual during the taxable year; and (D) For any taxable year ending after 1965 and prior to 1968, (i) $6,600, minus (ii) the amount of the wages paid to such individual during the taxable year; and (E) For any taxable year ending after 1967 and beginning prior to 1972, (i) $7,800, minus (ii) the amount of the wages paid to such individual during the taxable year; and (F) For any taxable year beginning after 1971 and prior to 1973, (i) $9,000, minus (ii) the amount of the wages paid to such individual during the taxable year; and (G) For any taxable year beginning after 1972 and prior to 1974, (i) $10,800, minus (ii) the amount of the wages paid to such individual during the taxable year; and (H) For any taxable year beginning after 1973 and prior to 1975, (i) $13,200, minus (ii) the amount of the wages paid to such individual during the taxable year; and (I) For any taxable year beginning in any calendar year after 1974, (i) an amount equal to the contribution and benefit base (as determined under section 230) which is effective for such calendar year, minus (ii) the amount of the wages paid to such individual during such taxable year; or (2) The net earnings from self-employment, if such net earnings for the taxable year are less than $400. An individual who is not a citizen of the United States but who is a resident of the Commonwealth of Puerto Rico, the Virgin Islands, Guam, or American Samoa shall not, for the purposes of this subsection, be considered to be a nonresident alien individual. In the case of church employee income, the special rules of subsection (i)(2) shall apply for purposes of paragraph (2). Trade or Business (c) The term "trade or business", when used with reference to self-employment income or net earnings from self-employment, shall have the same meaning as when used in section 162 of the Internal Revenue Code of 1986 180, except that such term shall not include (1) The performance of the functions of a public office, other than the functions of a public office of a State or a political subdivision thereof with respect to fees received in any period in which the functions are performed in a position compensated solely on a fee basis and in which such functions are not covered under an agreement entered into by such State and the Commissioner of Social Security pursuant to section 218; 180 See Vol. II, P.L. 83-591, §162. (2) The performance of service by an individual as an employee, other than (A) service described in section 210(a)(14)(B) performed by an individual who has attained the age of eighteen, (B) service described in section 210(a)(16), (C) service described in section 210(a)(11), (12), or (15) performed in the United States by a citizen of the United States, except service which constitutes "employment" under section 210(r), (D) service described in paragraph (4) of this subsection, (E) service performed by an individual as an employee of a State or a political subdivision thereof in a position compensated solely on a fee basis with respect to fees received in any period in which such service is not covered under an agreement entered into by such State and the Commissioner of Social Security pursuant to section 218, (F) service described in section 210(a)(20), and (3) The performance of service by an individual as an employee or employee representative as defined in section 3231 of the Internal Revenue Code of 1986 181; (4) The performance of service by a duly ordained, commissioned, or licensed minister of a church in the exercise of his ministry or by a member of a religious order in the exercise of duties required by such order; (5) The performance of service by an individual in the exercise of his profession as a Christian Science practitioner; or (6) The performance of service by an individual during the period for which an exemption under section 1402(g) of the Internal Revenue Code of 1986 182 is effective with respect to him. The provisions of paragraph (4) or (5) shall not apply to service (other than service performed by a member of a religious order who has taken a vow of poverty as a member of such order) performed by an individual unless an exemption under section 1402(e) of the Internal Revenue Code of 1986 is effective with respect to him. Partnership and Partner (d) The term “partnership" and the term "partner" shall have the same meaning as when used in subchapter K of chapter 1 of the Internal Revenue Code of 1986. Taxable Year (e) The term "taxable year" shall have the same meaning as when used in subtitle A of the Internal Revenue Code of 1986; and the taxable year of any individual shall be a calendar year unless he has a different taxable year for the purposes of subtitle A of such Code, in which case his taxable year for the purposes of this title shall be the same as his taxable year under such subtitle A. Partner's Taxable Year Ending as Result of Death (f) In computing a partner's net earnings from self-employment for his taxable year which ends as a result of his death (but only 181 See P.L. 83–591, §3231 (this volume). 182 See P.L. 83–591, §1402 (this volume). if such taxable year ends within, and not with, the taxable year of the partnership), there shall be included so much of the deceased partner's distributive share of the partnership's ordinary income or loss for the partnership taxable year as is not attributable to an interest in the partnership during any period beginning on or after the first day of the first calendar month following the month in which such partner died. For purposes of this subsection (1) in determining the portion of the distributive share which is attributable to any period specified in the preceding sentence, the ordinary income or loss of the partnership shall be treated as having been realized or sustained ratably over the partnership taxable year; and (2) the term "deceased partner's distributive share" includes the share of his estate or of any other person succeeding, by reason of his death, to rights with respect to his partnership interest. Regular Basis (g) An individual shall be deemed to be self-employed on a regular basis in a taxable year, or to be a member of a partnership on a regular basis in such year, if he had net earnings from self-employment, as defined in the first sentence of subsection (a), of not less than $400 in at least two of the three consecutive taxable years immediately preceding such taxable year from trades or businesses carried on by such individual or such partnership. (h)(1) In determining the net earnings from self-employment of any options dealer or commodities dealer (A) notwithstanding subsection (a)(3)(A), there shall not be excluded any gain or loss (in the normal course of the taxpayer's activity of dealing in or trading section 1256 contracts) from section 1256 contracts or property related to such contracts, and (B) the deduction provided by section 1202 of the Internal Revenue Code of 1986 shall not apply. (2) For purposes of this subsection (A) The term "options dealer" has the meaning given such term by section 1256(g)(8) of such Code 183. (B) The term "commodities dealer" means a person who is actively engaged in trading section 1256 contracts and is registered with a domestic board of trade which is designated as a contract market by the Commodities Futures Trading Commission. (C) The term "section 1256 contracts" has the meaning given to such term by section 1256(b) of such Code. (i)(1) In applying subsection (a)— (A) church employee income shall not be reduced by any deduction; (B) church employee income and deductions attributable to such income shall not be taken into account in determining the amount of other net earnings from self-employment. (2)(A) Subsection (b)(2) shall be applied separately (i) to church employee income, and (ii) to other net earnings from self-employment. 183 See Vol. II, P.L. 83-591, §1256. (B) In applying subsection (b)(2) to church employee income, "$100" shall be substituted for "$400". (3) Paragraph (1) shall not apply to any amount allowable as a deduction under subsection (a)(11), and paragraph (1) shall be applied before determining the amount so allowable. (4) For purposes of this section, the term "church employee income" means gross income for services which are described in section 210(a)(8)(B) (and are not described in section 210(a)(8)(A)). Codification of Treatment of Certain Termination Payments (j) Nothing in subsection (a) shall be construed as including in the net earnings from self-employment of an individual any amount received during the taxable year from an insurance company on account of services performed by such individual as an insurance salesman for such company if— (1) such amount is received after termination of such individual's agreement to perform such services for such company, (2) such individual performs no services for such company after such termination and before the close of such taxable year, (3) such individual enters into a covenant not to compete against such company which applies to at least the 1-year period beginning on the date of such termination,and (4) the amount of such payment (A) depends primarily on policies sold by or credited to the account of such individual during the last year of such agreement or the extent to which such policies remain in force for some period after such termination, or both, and (B) does not depend to any extent on length of service or overall earnings from services performed for such company (without regard to whether eligibility for payment depends on length of service). 184 CREDITING OF SELF-EMPLOYMENT INCOME TO CALENDAR YEARS SEC. 212. [42 U.S.C. 412] (a) For the purposes of determining average monthly wage and quarters of coverage the amount of selfemployment income derived during any taxable year which begins before 1978 shall (1) in the case of a taxable year which is a calendar year, be credited equally to each quarter of such calendar year; and (2) in the case of any other taxable year, be credited equally to the calendar quarter in which such taxable year ends and to each of the next three or fewer preceding quarters any part of which is in such taxable year. (b) For the purposes of determining average indexed monthly earnings, average monthly wage, and quarters of coverage the amount of self-employment income derived during any taxable year which begins after 1977 shall 184 P.L.105-34, §922(b), added subsection (j), applicable to payments after December 31, 1997. (1) in the case of a taxable year which is a calendar year or which begins with or during a calendar year and ends with or during such year, be credited to such calendar year; and (2) in the case of any other taxable year, be allocated proportionately to the two calendar years, portions of which are included within such taxable year, on the basis of the number of months in each such calendar year which are included completely within the taxable year. For purposes of clause (2), the calendar month in which a taxable year ends shall be treated as included completely within that taxable year. QUARTER AND QUARTER OF COVERAGE Definitions SEC. 213. [42 U.S.C. 413] (a) For the purposes of this title (1) The term "quarter", and the term "calendar quarter", mean a period of three calendar months ending on March 31, June 30, September 30, or December 31. (2)(A) The term "quarter of coverage" means (i) for calendar years before 1978, and subject to the provisions of subparagraph (B), a quarter in which an individual has been paid $50 or more in wages (except wages for agricultural labor paid after 1954) or for which he has been credited (as determined under section 212) with $100 or more of selfemployment income; and (ii) for calendar years after 1977, and subject to the provisions of subparagraph (B), each portion of the total of the wages paid and the self-employment income credited (pursuant to section 212) to an individual in a calendar year which equals the amount required for a quarter of coverage in that calendar year (as determined under subsection (d)), with such quarter of coverage being assigned to a specific calendar quarter in such calendar year only if necessary in the case of any individual who has attained age 62 or died or is under a disability and the requirements for insured status in subsection (a) or (b) of section 214, the requirements for entitlement to a computation or recomputation of his primary insurance amount, or the requirements of paragraph (3) of section 216(i) would not otherwise be met. (B) Notwithstanding the provisions of subparagraph (A)— (i) no quarter after the quarter in which an individual dies shall be a quarter of coverage, and no quarter any part of which is included in a period of disability (other than the initial quarter and the last quarter of such period) shall be a quarter of coverage; (ii) if the wages paid to an individual in any calendar year equal $3,000 in the case of a calendar year before 1951, or $3,600 in the case of a calendar year after 1950 and before 1955, or $4,200 in the case of a calendar year after 1954 and before 1959, or $4,800 in the case of a calendar year after 1958 and before 1966, or $6,600 in the case of a calendar year after 1965 and before 1968, or $7,800 in the case of a calendar year after 1967 and before 1972, or $9,000 in the case of the calendar year 1972, or $10,800 in the case of the calendar year |