Program Operations Manual System (POMS)
TN 11 (12-08)
RS 01803.160 Optional Method of Computing Nonfarm NESE
Under the nonfarm optional method, a regularly self-employed individual may report
2/3 of his gross nonfarm income (but not more than $1600) as his nonfarm NESE if his
actual NESE are:
less than 2/3 of his gross income from such self-employment.
However, unlike the farm optional method, the nonfarm option precludes reporting less
than the actual NE from nonfarm SE.
To use the nonfarm optional method, the individual must be regularly self-employed
or a regular member of a partnership engaged in a trade or business.
This requirement is met if he had actual NESE of $400 or more in at least 2 years
of the 3 consecutive years immediately preceding the taxable year for which he elects
to use the nonfarm option.
The optional method of computing nonfarm NESE cannot be used more than five taxable
years by any one individual.
Where both nonfarm and farm businesses are involved, the nonfarm option may be used
only if the individual's actual nonfarm NESE plus the actual farm NESE (or optional
farm NESE) are less than $1600. The net nonfarm earnings must also be less than 2/3
of the gross nonfarm SE income.
If an individual qualifies to use both options, he or she may report less than actual
total net earnings, but not less than actual NE from nonfarm SE alone.
If an individual elects to use both the nonfarm option and the farm option in computing
NESE, the maximum combined total amount of NESE for any one taxable year cannot exceed
Note: Effective with tax years after 12/31/07 the maximum amount reportable using
the optional method of reporting will be equal to the amount of earnings needed for four quarters of coverage for a given year. For
example, for tax year 2008 the maximum amount reportable using the optional method
of reporting is $4200. See RS 00301.250 to determine the amount of earnings needed to acquire a quarter of coverage (QC)
and/or four QC’s for a given tax year beginning with calendar year 1977 and after.
Further, the maximum “net non farm profit” is increased to less than $4,548 for tax
year 2008. See 2008 IRS Schedule SE Instructions and IRS Form Schedule SE for 2008
and/ or pertinent tax year(s) invovled at http://www.irs.gov /.