Self Employment Tax roll-call

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Expand view Topic review: Self Employment Tax roll-call

Re: Self Employment Tax roll-call

by Guest10010 » Sun Aug 18, 2013 8:39 am

Guest wrote:SMART very specifically calls the "stipend" an award payment. It is not a paycheck nor compensation. Self employment tax is very strictly for compensation only. Don't pay it. You do NOT work for the DoD or SMART. They are extremely clear that you in no way are employed. Having said that, deductions for expenses are ONLY for income generating expenses. So, if you aren't paying self employment taxes you can't deduct living expenses. That's fraud. 100% of this is from IRS definitions and CPA consultation...not opinion.
My CPA was able to get me about $7000 in tax deductions both years of my internship by deducting living and food expenses at per diem rates (Too much work and less payout to itemize). I'm not totally sure how it was filed to do this, but by living in a really cheap apartment, I was able to keep actual internship expenses to just over the amount I got back in taxes. I think it had something to do with considering my internship as mandatory for my educational program and deducting it as a educational expense.

Re: Self Employment Tax roll-call

by Guest » Fri Aug 16, 2013 6:54 pm

SMART very specifically calls the "stipend" an award payment. It is not a paycheck nor compensation. Self employment tax is very strictly for compensation only. Don't pay it. You do NOT work for the DoD or SMART. They are extremely clear that you in no way are employed. Having said that, deductions for expenses are ONLY for income generating expenses. So, if you aren't paying self employment taxes you can't deduct living expenses. That's fraud. 100% of this is from IRS definitions and CPA consultation...not opinion.

Re: Self Employment Tax roll-call

by guestagain » Mon Jul 01, 2013 8:21 am

madashell, very helpful, thanks!

Re: Self Employment Tax roll-call

by madashell » Thu Jun 27, 2013 1:42 pm

I got audited via mail from the IRS on the self employment tax.

Here is what I did:

1. Typed a small 2 line explanation stating that I am not subject to self employment tax because the stipend is intended for food and lodging. The stipend is part of a scholarship.

2. Took a letter SMART had written to my school that outlined what the scholarship paya for and how the money is to be allocated and sent this in with my letter.

Seems to have worked as the IRS has not asked for additional documentation.

Re: Self Employment Tax roll-call

by 2008cohort » Tue Jun 25, 2013 9:58 pm

guestagain wrote:Also by that same phrasing, our "payer" is directing what will be done and how it will be done. We have to get our clearance, we have to work in a DoD facility, we have to maintain a 3.5 GPA, we owe a service commitment, we have to tell them what classes we are taking and when, I mean we signed a contract and have a whole handbook of things of what we have to do and how we have to do it.

If we didn't have to do that stuff and just get a degree however we see fit whether it takes 4 years or 12 and go along our merry way (without a commitment), then in my opinion it would be different.

I know you are not trying to be a smartass btw, and I'm not arguing either I'm just trying to make sense of this. I am asking for your sort of reasoning so it can help make my own decision.
For what it's worth, when I was at my orientation (I was in the first orientation after the pilot program year), this question came up. They prefaced their answer by saying they can't comment on tax stuff, but then told us not to pay self employment tax. I think the reasoning was that we are not rendering any services to them for the stipend. Personally, I never saw maintaining a GPA, clearance, and graduating on time as something I did for the stipend but just stipulations of the scholarship. Kind of like how our summer support payments were, IIRC, specifically not for work rendered. I think supporting my reasoning was that I was continued to be paid for about 3 months after I graduated until my SF could hire me. I did absolutely nothing in return for that money. I realize they do not do that anymore, but I think that is more of a budget problem due to foreseen issues with SF's hiring.

Re: Self Employment Tax roll-call

by guestagain » Tue Jun 25, 2013 6:44 pm

Also by that same phrasing, our "payer" is directing what will be done and how it will be done. We have to get our clearance, we have to work in a DoD facility, we have to maintain a 3.5 GPA, we owe a service commitment, we have to tell them what classes we are taking and when, I mean we signed a contract and have a whole handbook of things of what we have to do and how we have to do it.

If we didn't have to do that stuff and just get a degree however we see fit whether it takes 4 years or 12 and go along our merry way (without a commitment), then in my opinion it would be different.

I know you are not trying to be a smartass btw, and I'm not arguing either I'm just trying to make sense of this. I am asking for your sort of reasoning so it can help make my own decision.

Re: Self Employment Tax roll-call

by guestagain » Tue Jun 25, 2013 6:35 pm

Empty,

I honestly can not recall where I found that little tidbit. It may have only been through a little bit of web searching last year and I might not have found it through a reputable source. But I suppose I clung to that phrasing as hope that I don't have to pay an additional 5k.

This is why I am nervous about it, because things are quite unclear. But when I do the example listed in our handbook, the numbers work out assuming we don't pay the self employment tax. And then because when I do turbo tax it basically will or won't add it in because its reported as "other income" because the turbo tax questions themselves are sort of difficult to answer because they dont exactly have the right questions for our situation (In fact it has said it was reported on the wrong form before when I said it was a scholarship and had to re-answer questions for it to go through).

Not that any of this is the end-all be-all that's why I posted this, because I have no effing clue.

Re: Self Employment Tax roll-call

by Guest » Mon Jun 24, 2013 10:08 am

kingkoopa wrote:Similar to how some universities get away with not considering graduate students employees thus not paying social security/medicare. If you file using TAXAct or H&R Block software and use the 1099-MISC provided from SMART it does not charge you self employment tax, which is good enough for me.
These were my criteria as well.

Re: Self Employment Tax roll-call

by kingkoopa » Mon Jun 24, 2013 9:55 am

I did not pay the self employment tax. There is some clause where if the compensation is much greater than the work being performed then it is not considered employment. Similar to how some universities get away with not considering graduate students employees thus not paying social security/medicare. If you file using TAXAct or H&R Block software and use the 1099-MISC provided from SMART it does not charge you self employment tax, which is good enough for me.

Re: Self Employment Tax roll-call

by upsetSMART » Sun Jun 23, 2013 10:51 pm

I never paid self employment tax. The income was simply listed as misc income. I also tax deducted about $7000 in hotel costs for my first internships (dumb move to use a hotel, but I knew nothing about getting an apartment at the time) as a business expense. It did set off a flag with the IRS, and they did call me, which ended up in a yelling match with one of their attorneys claiming the SMART program was too ridiculous to actually exist when I explained the situation, and I was trying to hide a side business. Thankfully I had a CPA handling my taxes and worked it out. I think I'v usually paid $300 a year for my CPA, but it has been saved me far more than that in taxes. I go through a private CPA rather than a chain, and having the same person keeping track of everything over the years has been awesome.

Re: Self Employment Tax roll-call

by 2012_UMD » Sun Jun 23, 2013 9:48 pm

http://www.irs.gov/taxtopics/tc421.html

According to this, I would say the ISP's are independent contractor type stuff, but the stipend is taxed as normal income, not self-employed income.

Re: Self Employment Tax roll-call

by empty » Sun Jun 23, 2013 11:34 am

guestagain wrote:I know it isn't tax season but I am a little nervous about this tax. It's another very large chunk that adds on top of the regular tax rates (for 2013 an additional 15.3% of the total, for most of us an additional several thousands of dollars). However, because we are not working for the sole reason of making an income, and are working or the sole reason of getting an education, one can argue that we don't qualify for this tax, especially because we are reported in the iffy box 7 and not the must-pay box 3.

It sounds like tax professionals are split on this issue, some saying we have to, some saying we don't. I just wanted to get a general roll-call for if you are paying self employment or if you are not paying self employment.

Because I am doing the estimated payments I didn't take it into account so let's say I am +1 for not paying (Hopefully all of you are also doing estimated payments, for your sake)

This may sound smart-ass-y, and it is not intended to be:

Can you please state a portion or line on the tax code where "we are not working for the sole reason of making an income, and are working or the sole reason of getting an education" is relevant?

If the argument is that your occupation is "student", then you are still paid to be a student... making you an independent contractor under the following IRS guidelines "The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done. The earnings of a person who is working as an independent contractor are subject to Self-Employment Tax."
http://www.irs.gov/Businesses/Small-Bus ... or-Defined

In this case, the "what will be done" is completion of an educational degree.

As you may expect, I pay the self-employment tax. I am, however, interested to see your IRS-based justification, because I'd love to not pay it...

Re: Self Employment Tax roll-call

by Guest » Sun Jun 23, 2013 11:33 am

I pay the self employment on my internship support payments, as those are specifically to help you accomplish work at a SF.

I do not pay self employment on my stipend payments.

Re: Self Employment Tax roll-call

by Guest » Sun Jun 23, 2013 10:20 am

I do not pay the self employment tax ... for the same reason as stated above. I Have argued with several people on the forum about this over the years.

Self Employment Tax roll-call

by guestagain » Sun Jun 23, 2013 9:56 am

I know it isn't tax season but I am a little nervous about this tax. It's another very large chunk that adds on top of the regular tax rates (for 2013 an additional 15.3% of the total, for most of us an additional several thousands of dollars). However, because we are not working for the sole reason of making an income, and are working or the sole reason of getting an education, one can argue that we don't qualify for this tax, especially because we are reported in the iffy box 7 and not the must-pay box 3.

It sounds like tax professionals are split on this issue, some saying we have to, some saying we don't. I just wanted to get a general roll-call for if you are paying self employment or if you are not paying self employment.

Because I am doing the estimated payments I didn't take it into account so let's say I am +1 for not paying (Hopefully all of you are also doing estimated payments, for your sake)

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