Self-Employment Income Calculation Self-Employment Income Calculation

Self-Employment Income Calculation

Owners of any entity that is taxed as a partnership or sole proprietorship are coded as 'Self Employed' in the Employee Class column on the census grid; this triggers the software to calculate the earned income, which is their compensation for plan allocation purposes. The starting point for calculating earned income is gross compensation from either Schedule K-1 (for a partner) or Schedule C (for a sole proprietor). This compensation (less any depreciation allowance under IRC §179 if applicable) is what you will enter into the census grid in the software.

When you run the allocation, the system deducts any employer contributions for common law employees in proportion to the ownership percentage entered in the census, and reduces the compensation for the IRC 164(f) deduction. Additionally, the software runs circular calculations to determine the allocation amount (if applicable) and reduces the self-employed person’s compensation by that amount as well. The resulting number is the earned income.

To view the reductions to the earned income, go to Other Import/Export/Reports and select the 'ftw Self Employment Calculations' from one of the drop down boxes and click 'Save Selections'. Then click the Edit Data link to view the data.