Tax Court Rejects Self-Employment Claim by Freelance Movie Critic

Generally, self-employed individuals are required to pay annual self-employment tax, the equivalent of FICA tax for employees, on most business earnings. But self-employment tax doesn’t apply to “other income” received by self-employeds. In a new case, Clark, TC Memo 2025-13, 2/5/25, the Tax Court turned thumb’s down on a claim by a freelance movie reviewer and movie memorabilia seller.

Beginning of the story: If you’re an employee, your employer withholds FICA tax, comprised of OASDI tax and HI tax, from your compensation on a regular schedule. In 2025, the OASDI tax portion is 6.2% on wages up to a base of $176,100. The 1.45% HI tax applies to all 2025 wages.

Conversely, self-employed individuals don’t have to contend with FICA tax withholding, but must pay an equivalent in self-employment tax. The tax rates on both the OASDI and HI portions of the tax are doubled to 12.4% and 2.9%, respectively (but half is deductible). So, a self-employed individual showing taxable income of $100,000 must pay $15,300 in self-employment tax (15.3% of $100,000). The tax is paid in quarterly installments.

However, income received by a self-employed individual that is classified as “other income” on Schedule C, Form 1040, is not subject to self-employment tax. This includes various fuel credits, interest and certain other miscellaneous types of income.  

The taxpayer in the new case relied on the “other income” exception to avoid self-employment tax derived from business activities.

Middle of the story: The taxpayer is a long-time freelance writer of movie reviews. He received $8,250 from freelance writing in 2019. In addition, the taxpayer frequently buys and sells movie-related memorabilia.  He sells the memorabilia online and receives the sales proceeds from a popular third-party app.

In 2019. the taxpayer pocketed almost $42,000 from movie memorabilia sales. No federal tax was withheld from any payments. The third-party network reported this information to the taxpayer and the IRS. The exemption from self-employment tax was also reported to the Social Security Administration (SSA).

Although the taxpayer had some professional assistance from a well-known national firm, he prepared his own 2019 return. He didn’t report any income from his freelance movie work or movie memorabilia sales as regular business income. Instead, he reported the total amount of his business revenue—about $50,000—as other income on Schedule C.

Ultimately, the taxpayer showed a tax liability of more than $4,300. Due to quarterly estimated tax payments, he was eligible for a refund.

After issuing a refund to the taxpayer, the IRS reversed field and assessed a deficiency. The taxpayer disagreed and took the case to the Tax Court

Notably, the taxpayer argued that the refund the IRS issued amounted to a “concession” that the entry was accurate. He also pointed to an SSA document that initially showed self-employment income of zero before it was revised to reflect the IRS’ change.

End of the story: The Tax Court refuted these arguments. There was no concession from the IRS and the SSA document was initially based on the taxpayer’s incorrect entry. In addition to back taxes and interest, the Tax Court tacked on an accuracy-related penalty.