How to convince the IRS we shouldn't pay 'self-employment' tax

Spokane, WA Viewed 309 times. Posted about 1 year ago in Tax

Help me out if possible.

My wife received $5,000 in 2006 and the IRS now says we should have paid self employemnt tax for that amount. We listed it as other miscellaneous income and don't agree it is the same as self-employed.

She has a regular day job for the state of Washington. She was asked by the State Bar to score and grade one of the bar exam questions. She did that twice and received $2500 each time.

The IRS says that self employment is either being an independent contractor or being a sole proprietor of a business.

How do we convince them that this non continuing, twice-voluntary service doesn't amount to being an independent contractor? - Is this your question? Add additional information

Answers (3)

mhudsonlaw

Posted about 1 year ago.

Bad news. She earned the money for services she performed. Whether or not she had an understanding with the State Bar about how much or whether she'd be paid is irrelevant. I believe she owes the self employment tax. See IRS Publication 535.

Knute Arthur Rife

This attorney is licensed in Washington. Posted about 1 year ago.

It isn't voluntary if you're paid. It sounds like the Bar treated her as an independent contractor, so she is responsible for her own witholding, including self-employment.

Thuong-Tri Nguyen

This attorney is licensed in Washington. Posted about 1 year ago.

Being "self-employed" may not be so bad. If there were expenses (such as mileage, postage, education, etc.) connected to the self-employment, those expenses may be deductible, reducing the amount of taxes. If the expenses are more than the incomes, there may be a loss that reduces other incomes.

Self-employment taxes replace the Social Security and Medicare taxes paid by employees and employer. There is an annual limit on the portion for Social Security taxes. If the wife is making above the maximum wage subject to Social Security taxes (about $96,000) in her other job, she would not have to pay that portion of the self-employment taxes.

There is a deduction for the portion of the self-employment taxes that would have been paid by the employer.

If she has political aspirations, being too aggressive with finding ways to reduce taxes may not look good.

She may want to review her facts and options with a tax professional.