What this line means
The total from the optional methods calculated in Section B (lines 15 and 17). This line is blank for most filers. You only use it if you elected the farm optional method, the nonfarm optional method, or both in Section B. The optional methods let you report a higher amount of SE earnings than your actual net profit — useful when you want to earn Social Security credits despite having a loss or very small profit.
Does this apply to you?
- You completed Section B and used the farm optional method on line 15
- You completed Section B and used the nonfarm optional method on line 17
- You had a loss or small profit but want to pay SE tax to earn Social Security credits
- You used optional methods in fewer than five previous years (the lifetime limit)
Easy to overlook
Optional methods have a lifetime limit of five uses You can use the farm optional method and the nonfarm optional method a combined maximum of five times each over your lifetime. Once you have used either method five times, it is no longer available. There is no IRS tracking system for this — you must track your own usage across all prior returns. Using the method a sixth time results in an incorrect return. 1 IRS Schedule SE instructions — Line 4b
Using the optional method increases your SE tax, not decreases it The optional methods report higher self-employment earnings than your actual profit. This means you pay more SE tax than you otherwise owe. The benefit is earning Social Security credits in a year when your actual profit is too low to generate them. If your goal is to reduce SE tax, the optional methods work against you. 2 IRS Publication 225 — Farmer’s Tax Guide
Watch out for this
Entering an optional method amount without completing Section B. Line 4b must come from the calculations on lines 14 through 17 of Section B. Entering an estimated or arbitrary amount here without performing the Section B computation produces an unsupported figure that does not match the IRS worksheets.
Footnotes
-
IRS Schedule SE (Form 1040) Instructions, Line 4b. https://www.irs.gov/instructions/i1040sse ↩
-
IRS Publication 225, Farmer’s Tax Guide, Optional Methods for Computing SE Tax. https://www.irs.gov/pub/irs-pdf/p225.pdf ↩