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Leasing Arrangements and Self-employment (Social Security) Tax

Roger McEowen and, Leonard Dolezal (August, 2014)

Summary

Self-employment tax is imposed on net earnings derived from self-employment. That phrase is defined as gross income derived by an individual from a trade or business that the taxpayer conducts. However, rents from real estate and from personal property leased with real estate are excluded from the definition of net earnings from self-employment. Likewise, income from crop share and/or livestock-share rental arrangements for landlords who are not materially participating in the farming operation are not classified as self employment income subject to Social Security tax (and, thus, do not count toward eligibility for Social Security benefits in retirement).