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Allocation of Self-Employment Income

Excerpted from "Social Security Handbook". See the up-to-date, official Social Security Handbook at ssa.gov.

715. Allocation of Self-Employment Income

715.1 How is self-employment income allocated for the years 1978 and later?

Self-employment income in taxable years (other than calendar years) is allocated proportionately to the two calendar years in which it was derived. The allocation is based on the number of months in each calendar year. Your self-employment income may be allocated for more than four calendar quarters if the taxable year includes parts of two calendar years. (See §214.) Only your self-employment income allocated to the calendar quarters in computation years is considered in figuring your AIME.

Example: A self-employed person has a fiscal taxable year beginning May 15, 1983, and ending May 14, 1984. His $6,000 self-employment income is allocated $3,500 (7/12) to calendar year 1983 and $2,500 (5/12) to 1984.

715.2 How is self-employment income allocated prior to 1978?

For taxable years beginning before 1978, your self-employment income is allocated equally to the calendar quarters, wholly or partly, in the taxable year in which it was derived. This allocation begins with the quarter in which the taxable year ended and continues to the preceding three calendar quarters.

715.3 What if you are self-employed and your taxable year has not ended when your PIA is computed?

If your self-employed taxable year has not ended at the time the PIA is computed, your net earnings from self-employment earned in the incomplete taxable year cannot be considered in computing the PIA. This is true even if the income may have been partially derived in the closed calendar year. The self-employment income is recorded and the PIA recomputed after you file your tax return.

Last Revised: Sep. 22, 2003

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