What this line means
The nonfarm optional method lets you report two-thirds of your gross nonfarm income as SE earnings instead of using your actual net profit from Schedule C. Enter the smaller of two-thirds of gross nonfarm income (not less than zero) or line 16. Like the farm optional method, this is designed for self-employed individuals who want to pay SE tax to earn Social Security credits in a loss year or low-profit year. The amount flows to line 4b in Section A.
Does this apply to you?
- You had a net loss or very small profit on Schedule C and want to earn Social Security credits
- You had significant gross receipts on Schedule C but your expenses wiped out the profit
- You have not used the nonfarm optional method five times in prior tax years
- You are willing to pay SE tax on more income than you actually earned
Easy to overlook
The nonfarm optional method requires actual gross income You cannot use this method if your gross nonfarm income is zero or negative. The method is based on two-thirds of gross income — if there is no gross income, there is nothing to calculate. A Schedule C with zero revenue and $5,000 in expenses produces a $5,000 loss, but the nonfarm optional method produces zero because there is no gross income to take two-thirds of. 1 IRS Schedule SE instructions — Line 17
Social Security credits require a minimum amount of earnings per credit Using the optional method to earn Social Security credits only works if the amount you report is high enough to generate credits. For 2025, one credit requires $1,810 in earnings, and you can earn a maximum of four credits per year ($7,240 total). If your optional method amount is below $1,810, you pay SE tax but earn zero credits — defeating the purpose. 2 IRS Publication 334 — Tax Guide for Small Business
Watch out for this
Entering more than line 16 allows. The nonfarm optional method amount is the smaller of two-thirds of gross nonfarm income or line 16 (the remaining cap after the farm method). If you also used the farm optional method, line 16 is less than line 14. Entering an amount that exceeds line 16 overstates your optional method earnings beyond what the IRS permits.
Footnotes
-
IRS Schedule SE (Form 1040) Instructions, Line 17. https://www.irs.gov/instructions/i1040sse ↩
-
IRS Publication 334, Tax Guide for Small Business, Optional Methods for SE Tax. https://www.irs.gov/pub/irs-pdf/p334.pdf ↩