Effective Dates: 12/14/2023 - Present Previous | Next

TN 90 (12-23)

SI 00820.230 How to Estimate NESE for Current Taxable Year

A. Procedure

1. When an Estimate Is Needed

Estimate NESE for the current taxable year during an initial claim, redetermination, or review of income when an individual alleges (or you believe) they are (or have been) engaged in self-employment during the current taxable year.

2. Advice to Individual

Advise the individual:

  • •

    how their estimated NESE was determined and its effect on eligibility and/or payment amount.

  • •

    to promptly contact the field office if any change occurs which could affect the amount of their estimated NESE.

  • •

    to maintain business records until a Federal income tax return is available, so they can report any changes promptly (when any method other than the first two in the chart in SI 00820.230A.4. is used).

  • •

    to provide a copy of their Federal income tax return when it becomes available.

3. Net Loss

Do not take into account an estimated net loss when estimating NESE for the current taxable year.

NOTE: A net loss can only be used to offset other earnings after it has been verified.

4. How to Estimate NESE

Use the first of the following methods in the sequence below, which is applicable.

When the estimate is obtained using business records or the individual's allegation, ask the individual if they plan to file a tax return.

  • •

    If yes and the estimated net profit is $400 or more after applying the multiplier, multiply the net profit by .9235 to determine the chargeable NESE estimate.

  • •

    If yes and the estimated net profit is less than $400 after applying the multiplier, do not apply the multiplier.

  • •

    If no, charge the net profit as the NESE estimate. Do not apply the multiplier.

WHEN TO USE

METHOD

When an individual:

Current Year's Estimate Based on Prior Year's Profit
  • •

    has been conducting the same trade or business for several years;

  • •

    has had NESE which has been fairly constant from year-to- year; and

  • •

    anticipates no change or gives no satisfactory explanation of why current NESE would be substantially lower than past NESE

Use the NESE from the prior year as an estimate for the current taxable year.

When an individual:

Gross-Net Ratio
  • •

    is engaged in the same business that they had only in the preceding taxable year; and

  • •

    Calculate from the individual's tax return or business records the ratio between net profit and gross receipts for the last year.

EXAMPLE: Net profit of $1,200 for $6,000 gross income or 20 percent.

  • •

    anticipates no change or gives no satisfactory explanation of why current NESE would be substantially different from what it has been in the past

  • •

    Calculate from their records the actual gross receipts for the current taxable year and project it for the remainder of the year.

EXAMPLE: $4,000 in current year's receipts for the first 6 months gives an assumed gross of $8,000 for the entire year.

  • •

    Apply the previously calculated gross- net ratio to the current year's assumed gross to arrive at the estimated NESE.

EXAMPLE: 20 percent of $8,000 is $1,600.

EXCEPTION: Do not use this method for businesses which are seasonal or have unusual income peaks at certain times of the year; go to next applicable procedure.

When an individual is engaged in a new business

Projecting Partial Year's Profit for Whole Year

  • •

    Obtain the individual's profit and loss statement or other business records for their taxable year to date.

  • •

    Ascertain their net profit to date.

  • •

    Project that net profit for the entire taxable year.

EXCEPTION: Do not use this method for businesses which are seasonal, or have unusual income peaks at certain times of the year; go to next applicable procedure.

When:

Individual's Estimate
  • •

    an individual is engaged in a new business and records are not yet available; or

  • •

    the business has been going on for some time but no records were kept

Use an allegation signed or recorded on a Report of Contact of the individual's best estimate.

When an individual:

Current Year's Estimate Varies from Past Records
  • •

    alleges their NESE for the current year will vary from NESE for past years; and
  • •

    Obtain a statement signed or recorded on a Report of Contact from the individual explaining the basis for the variation.

  • •

    gives a satisfactory explanation for the variation
  • •

    If the individual's estimate of NESE for the current year is higher than that of the prior years, and the individual satisfactorily explains why, accept the individual's estimate of NESE.

EXAMPLE: Individual recently added new products to their mail order sales catalog and sales have picked up dramatically.

  • •

    If the individual's estimate of NESE for the current year is lower than that of prior years, and the individual satisfactorily explains why, request any relevant documentation for the file and accept the lower estimate.

EXAMPLES:

  • •

    Satisfactory Explanation — the business has suffered a heavy loss or damage due to fire, flood, burglary, serious illness or disability of the owner, or other catastrophic event.

  • •

    Relevant Documentation — copies of newspaper accounts of the event, police reports, etc.

    NOTE: In some cases (e.g., downturns in the economy) there may not be any documentation of the event. In such cases, the individual's statement signed or recorded on a Report of Contact explaining the basis for the variation is sufficient documentation.

5. Documentation

Document the evidence used to support the estimate made by the adjudicator using EVID or a Report of Contact and lock it, or in non-SSI Claims system situations (i.e., non-MSSICS), store the information in NDRED using the Evidence Portal (EP), or in the Certified Electronic Folder (CEF), as appropriate.” Once the documentation is stored and viewed for content in either eView or EP, there is no need to retain the documentation.

To Link to this section - Use this URL:
http://policy.ssa.gov/poms.nsf/lnx/0500820230
SI 00820.230 - How to Estimate NESE for Current Taxable Year - 12/14/2023
Batch run: 12/14/2023
Rev:12/14/2023