Treatment of Self-Employment Income 430-05-30-57-15

(Revised 04/01/14 ML 3400)

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When an individual is actively engaged in a self-employment business, the

income they receive is considered earned income. The following types of

income are always considered earned income:

• Capital or Ordinary Gains/Losses
• Farm Income
• Business Income
• Partnership – Ordinary income, guaranteed payments to partners, depreciation and depletion

However, there are some types of income included on the self-employment

income tax forms that are considered unearned income. The following

types of income are always considered unearned income:

• Royalty income
• Cooperative distributions (patronage dividends)
• Partnership – rental, interest and dividend income
• Income from S-Corporations
• Estate or trust income

The following types are considered earned or unearned depending on

whether the individual is actively engaged in earning the income and the

self-employment tax forms filed.

• Farm rental income
• Other rental income

The earned income must be separated from the unearned income and will

be when using the self-employment calculation worksheet.