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B. Self-Employment Tax
Section 1401 imposes a tax on self-employment income,
defined generally as “the net earnings from self-employment
derived by an individual” for old-age, survivors, and disability
insurance. Sec. 1402(b). The net earnings are defined generally
as “the gross income derived by an individual from any trade or
business carried on by such individual, less the deductions
allowed by this subtitle which are attributable to such trade or
business”. Sec. 1402(a).
Respondent contends that petitioners are liable for self-
employment taxes for the income reported on Form 1099-MISC, which
represented the value of lodging provided by the Department of
the Air Force. Respondent argues that the income constitutes
nonemployee compensation to Mr. Abeyta because he was not an
employee of the Department of the Air Force. Respondent reasons
that had TRW paid for the lodging, the amount would have been
characterized as wages, which would have been subject to Federal
Insurance Contributions Act (FICA) and Medicare taxes, but
because it was paid by the Department of the Air Force, it
constitutes nonemployee compensation income reportable on
Schedule C, Profit or Loss From Business, which would be subject
to the self-employment tax. We disagree.
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Last modified: May 25, 2011