SSR 62-32. SELF-EMPLOYMENT INCOME -- OPTIONAL METHOD OF REPORTING FARM SELF-EMPLOYMENT
- A self-employed farmer filed application for old-age insurance benefits. He needed 13 quarters of coverage to be fully insured. His earnings record showed that he had eight quarters of coverage based on self-employment income for 1957 and 1958. In 1959 his gross income was more than $1,800, but his net earnings were only $200 and he had reported this latter amount. In 1960 his gross income was $1,650 and he had a net loss of $300 which he reported. He then filed a form electing to report net earnings from self-employment for 1959 and 1960 based on his gross farm income. Held, the worker is fully insured for old-age insurance benefits and, since all other requirements for entitlement are met, he is entitled to the benefits for which he applied.
M, a self-employed farmer, attained age 65 in July 1961 and filed an application for old-age insurance benefits in that month. To be entitled to such benefits beginning July 1961, M needed 13 quarters of coverage. His complete earnings record showed eight quarters of coverage based on self-employment income for 1957 and 1958. Examination of M's tax returns showed that he filed returns on a calendar year basis; that he had grossed more than $1,800 in each of the years 1957 through 1959 and had netted $1,700 in 1957, $1,500 in 1958, and $200 in 1959. In 1960 M's gross farm income was $1,650 and he had a net farm loss of $300. He had reported his actual net farm earnings or net loss for each year.
Under section 213(a)(2) of the Act, a quarter of coverage is a quarter in which the worker has been paid at least $50 in wages or for which he has been credited with $100 or more of self-employment income, or meets other conditions not applicable here. Under section 211(b), he has self-employment income for a year if his net earnings from self-employment for that year are at least $400, subject to certain exceptions not pertinent in the present case. For purposes of determining quarters of coverage, the self-employment income derived during a taxable year which is a calendar year is credited equally to each quarter of that year. Accordingly, a person who has net earnings from self-employment of at least $400 for a calendar year has four quarters of coverage for that year.
Under section 211(a), if a person engaged in agricultural self-employment has gross income of not more than $1,800, his net earnings from such self-employment may, at his option, be deemed to be two-thirds of such gross income; if he has gross income of more than $1,800 and net earnings of less than $1,200 in taxable year, the net earnings from self-employment derived by him in that year may, at his option, be deemed to be $1,200.
Such a self-employed farmer thus may report on his self-employment tax return either his actual net earnings or the "optional" amount. Even after his report has been made for a taxable year, he may, under section 205(c) of the Act, change his method of computing net earnings for that year by taking appropriate action within 3 years, 3 months, and 15 days after the end of that year. Ordinarily, an amended tax return must be filed to reflect the change in net earnings from the actual amount to the "optional" amount (or vice versa), and self-employment tax is payable on the new amount reported. However, Form 2190 (Change in Method of Computing Net Farm Earnings From Self-Employment) may be filed by self-employed farmers in lieu of an amended tax return in cases involving claims for social security benefits.
M had eight quarters of coverage based on his actual net earnings for 1957 and 1958. By timely exercise of his option for the years 1959 and 1960, M could have net earnings of $1,200 for 1959 and $1,100 (two-thirds of $1,650) for 1960. With such net earnings he would have an additional four quarters of coverage for each of these latter years, or a total of 16 quarters of coverage. Having been informed that he would not otherwise be insured, on September 21, 1961, M executed and filed a Form 2190 changing his method of reporting his net earnings from self-employment of 1959 and 1960. Since this action was taken within the time permitted under section 205(c), M has self-employment income of $1,200 in 1959 and $1,100 in 1960 and, therefore, acquired four quarters of coverage for each of these years.
It is, therefore, held that M has 16 quarters of coverage, is fully insured, and is entitled beginning July 1961 to the old-age insurance benefits for which he applied.