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Special Rules and Exceptions: Small-Business Taxes (2025 IRS Guide)

This guide covers “Special Rules and Exceptions” within small-business taxes. The following material presents the IRS treatment of this topic, including the qualifications, exceptions, and examples in the source section. Read the rules alongside the facts of your own situation before deciding what to report, deduct, or document.

Adapted from Publication 334 (2025), Tax Guide for Small Business, published by the Internal Revenue Service. This guide retains the source edition’s years, amounts, deadlines, and examples. It is guidance for that edition, not a statement that the same figures apply to every tax year.

Context for these rules

Generally, you must pay SE tax and file Schedule SE (Form 1040) if your net earnings from self-employment were $400 or more. Use Schedule SE (Form 1040) to figure net earnings from self-employment.

Special Rules and Exceptions

Aliens.

Generally, resident aliens must pay SE tax under the same rules that apply to U.S. citizens. Nonresident aliens are not subject to SE tax unless an international social security agreement (also known as a totalization agreement) in effect determines that they are covered under the U.S. social security system. However, residents of the U.S. Virgin Islands, Puerto Rico, Guam, the Commonwealth of the Northern Mariana Islands, or American Samoa are subject to SE tax, as they are considered U.S. residents for SE tax purposes. For more information on aliens, see Pub. 519, U.S. Tax Guide for Aliens.

Child employed by parent.

You are not subject to SE tax if you are under age 18 and you are working for your father or mother.

Church employee.

If you work for a church or a qualified church-controlled organization (other than as a minister, member of a religious order, or Christian Science practitioner) that elected an exemption from social security and Medicare taxes, you are subject to SE tax if you receive $108.28 or more in wages from the church or organization. For more information, see Pub. 517, Social Security and Other Information for Members of the Clergy and Religious Workers.

Fishing crew member.

If you are a member of the crew on a boat that catches fish or other aquatic life, your earnings are subject to SE tax if all the following conditions apply.

  1. You don’t get any pay for the work except your share of the catch or a share of the proceeds from the sale of the catch, unless the pay meets all the following conditions.

    1. The pay is not more than $100 per trip.

    2. The pay is received only if there is a minimum catch.

    3. The pay is solely for additional duties (such as mate, engineer, or cook) for which additional cash pay is traditional in the fishing industry.

  2. You get a share of the catch or a share of the proceeds from the sale of the catch.

  3. Your share depends on the amount of the catch.

  4. The boat’s operating crew normally numbers fewer than 10 individuals. (An operating crew is considered as normally made up of fewer than 10 if the average size of the crew on trips made during the last 4 calendar quarters is fewer than 10.)

Notary public.

Fees you receive for services you perform as a notary public are reported on Schedule C (Form 1040) but are not subject to SE tax (see the Instructions for Schedule SE (Form 1040)).

State or local government employee.

You are subject to SE tax if you are an employee of a state or local government, are paid solely on a fee basis, and your services are not covered under a federal-state social security agreement.

Foreign government or international organization employee.

You are subject to SE tax if both the following conditions are true.

  1. You are a U.S. citizen employed in the United States, Puerto Rico, Guam, American Samoa, the Commonwealth of the Northern Mariana Islands, or the U.S. Virgin Islands by:

    1. A foreign government,

    2. A wholly owned agency of a foreign government, or

    3. An international organization.

  2. Your employer is not required to withhold social security and Medicare taxes from your wages.

U.S. citizen or resident alien residing abroad.

If you are a self-employed U.S. citizen or resident alien living outside the United States, in most cases you must pay SE tax. Foreign earnings from self-employment can’t be reduced by your foreign earned income exclusion when computing self-employment tax.

Exception.

The United States has social security agreements with many countries to eliminate double taxation under two social security systems. Under these agreements, you must generally only pay social security and Medicare taxes to the country in which you live. The country to which you must pay the tax will issue a certificate that serves as proof of exemption from social security tax in the other country.

For more information, see the Instructions for Schedule SE (Form 1040).

More Than One Business

If you have earnings subject to SE tax from more than one trade, business, or profession, you must combine the net profit (or loss) from each to determine your total earnings subject to SE tax. A loss from one business generally reduces your profit from another business.

Community Property Income

If any of the income from a trade or business, other than a partnership, is community property income under state law, it is included in the earnings subject to SE tax of the spouse carrying on the trade or business.

Gain or Loss

Don’t include in earnings subject to SE tax a gain or loss from the disposition of property that is neither stock in trade nor held primarily for sale to customers. It doesn’t matter whether the disposition is a sale, an exchange, or an involuntary conversion.

Lost Income Payments

If you are self-employed and reduce or stop your business activities, any payment you receive from insurance or other sources for the lost business income is included in earnings subject to SE tax. If you are not working when you receive the payment, it still relates to your business and is included in earnings subject to SE tax, even though your business is temporarily inactive.

Using the guidance

Keep the documents that establish the dates, amounts, and circumstances described above. References to other chapters, forms, worksheets, or earlier and later sections refer to the linked IRS publication. Check the full publication and its updates before relying on a rule for a different tax year or a situation not addressed here.

Sources and further reading

The cited U.S. government text is in the public domain. Source accessed October 28, 2026. Fynoptic has organized this material for educational use and is independent of, and not endorsed by, the IRS.

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