Self Employment Tax for Part-year Amish Exemption

[scottmat28]

I have a client who has/had a form 4029 exemption from self-employment tax.  He left the Amish sect in October, 2023.  Self-employment Income earned after he left the Amish sect should be subject to self-employment tax.  Checking the box on the se tax screen excludes all income from se tax.  Overriding the se tax and deduction for 1/2 of same results in an e-file error.  Is there any way to make just the  part of self-employment income earned after leaving the Amish sect subject to se tax? 

[TaxGuyBill]

I don't know the answer, but I'm wondering if the easiest and least problematic method might be to file two separate Schedule Cs?

[scottmat28]

That was my conclusion as well, until I stumbled across Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers.  Pages 6 and 7 of Pub. 517 address "Members of a Religious Sect".  Towards the end of that section it states

"... The exemption will end if you fail to meet the
eligibility requirements or if the Commissioner of
Social Security determines that the sect or division fails to meet them. You must notify the IRS
within 60 days if you are no longer a member of
the religious group, or if you no longer follow the
established teachings of this group. The exemption will end for the tax year in which you or your
sect/division first fails to meet the eligibility requirements."  

So it looks like if the client ceased to be a member of the Amish sect in October, 2023 then his earnings from self-employment are subject to self-employment taxes for the entire year.  While he missed the stated deadline to notify SSA within 60 days, I see no penalty for late notification.  

While taxwise he doesn't come out quite as good as if he could have claimed part exemption, he still comes out ahead since he now qualifies for earned income credit and the Additional Child Tax credit, which combined exceeds his tax self-employment tax.  (Self-employment income that is exempt from se tax is not considered earned income for EIC and ACTC) so he has lost out on those credits in previous years.)

Thanks, TaxGuyBill, for making me think harder and research more.

[dkh]

@scottmat28    based on my experience with Amish clients - your client is going to want to send a letter to IRS requesting the F4029 exemption be revoked.  Otherwise your client will be denied SocSec if they try to draw in the future.   The F4029 instructions tell you where to send the letter.  IRS will send a letter with acknowledgement of the revocation. 

[scottmat28]

Yep.  Already drafted and awaiting client's signature.  Thanks for the affirmation,  There's not a lot of official guidance out there on this subject.