TN 91 (05-24)

SI 00820.200 Net Earnings from Self-Employment (NESE)


Sections 1612(a)(1)(B) and 211 of the Social Security Act ;
20 CFR 416.1110(b), 416.1111(b), and 404.1065 - 404.1096

A. Definition of NESE

NESE is the gross income from any trade or business less allowable deductions for that trade or business. NESE also includes any profit or loss in a partnership.

B. Procedure - Determining Whether an Activity Constitutes Self-Employment

Consider all factors in the case when an individual alleges participating in an activity that produces income to determine if it constitutes self-employment. If a determination is made that the activity does not result in wages or NESE, then the income derived by the activity is unearned income. Sometimes, just one different factor in two similar cases can result in each case being treated differently. The examples in SI 00820.200C. illustrate how specific factors of a case may result in a different conclusion. They are not provided as generalized guidance on specific types of activities.

C. Examples


Tina. Bell, an SSI recipient, reports at a redetermination that they began babysitting Tina's grandchild while the children's parent, Martha is working. Sometimes Tina has the child at Tina's home, but as a general rule, Tina goes to Martha's home because the child's toys and other items are there. Tina does not babysit for anyone else. Tina receives about $20 a week from Martha.

Although a caregiver is a recognized occupation, Tina is not holding themself out as a provider of daycare services, nor does Tina have intent to produce income. The CR determines that Tina is not self-employed.

However, if the income meets the definition of wages for the title II annual earnings test (e.g., an employer/employee relationship exists between Tina and Martha), it would be considered wages even though no FICA taxes are being deducted. If a determination is made that the activity does not result in wages or NESE, then the income derived by the activity is unearned income, coded as type SW on the SSR.


Simon is filing for SSI aged benefits. When asked about any income they receive, Simon indicates that they does babysit for various neighbors and friends, but does not consider themself as self-employed and files no tax forms for this income. Simon began providing these services when their own children were young to make some extra money. Simon relies on obtaining new business via word of mouth. Although Simon does not consider themselves in the daycare business, they meet all of the factors indicating the existence of a trade or business in RS 01802.002. Therefore, the CR determines that Simon is self-employed and institutes development of the NESE.


Matt. Lyons, an SSI recipient, reports that since they needed extra money to meet their rent and food expenses, Matt began to collect aluminum cans off the street to redeem at the recycle center for cash. In addition, sometimes their neighbors or local organizations contact Mattto pick up their cans. Matt does not file any tax returns, but estimates that they make about $200 a month.

Since this is an ongoing, regular activity that includes some third party collection pickups and was established with the intent of producing income, it is determined that Mr. Lyons is self-employed and development of the NESE is initiated.


Kieth. Kent, at a redetermination, reports they earned some money cutting the lawn for one of their neighbors. Kieth's car needed some unexpected repairs and they did not have the money. Keith's neighbor told Keith they would pay Keith $80 a month to cut the neighbors lawn for the month of July. Since Keith needed the cash to pay for the repair, Keith decided to cut the lawn. Keith is not holding themself out as a lawn service. Further, this is not an ongoing regular activity nor does Keith plan to do this activity to make a profit. Keith only did it to earn enough to pay for the car repair. Therefore, it's not NESE. However, even though there was no FICA withheld, the CR should develop whether the income is wages for annual earnings test purposes (e.g., does an employer/employee relationship exist). If a determination is made that the activity does not result in wages or NESE, then the income derived by the activity is unearned income.

D. References

  • Processing of Fraudulently Filed SE Tax Returns for Purposes of Claiming the EITC, RS 01804.525

  • To compute NESE for title II, RS 01803.002

  • To determine self-employment status of ministers and members of religious orders,

    RS 01901.600 - RS 01901.680

  • For factors indicating the existence of a trade or business, RS 01802.001 - RS 01802.010

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SI 00820.200 - Net Earnings from Self-Employment (NESE) - 05/29/2024
Batch run: 05/29/2024