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Highlights

Pursuant to a congressional request, GAO provided information on: (1) the number and characteristics of self-employed taxpayers who receive social security credit for self-employment earnings when they are delinquent in paying the self-employment taxes on those earnings; (2) why self-employed taxpayers who have not paid their self-employment taxes are allowed to receive social security credit; and (3) any potential actions that could enhance the collection of self-employment taxes.

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Recommendations

Recommendations for Executive Action

Agency Affected Recommendation Status
Internal Revenue Service To better inform taxpayers of the importance of filing tax returns within the statutory time limit, the Commissioner of Internal Revenue should revise IRS' self-employment publications, including those given under its Non-Filer Program, to ensure that self-employed taxpayers know about the need to file tax returns with self-employment earnings within 3 years, 3 months, and 15 days after the end of the calendar year in which the self-employment income was earned in order to get social security credit for those earnings.
Closed - Implemented
The IRS included this information in Publication 533, "Self-Employment Tax for 1998" and the 1999 version of Publication 583, "Starting a New Business and Keeping Records." It also included the recommended language in the 1999 version of Publication 334, "Tax Guide for Small Business," and in nonfiler notices.
Social Security Administration To better inform potential social security recipients of the importance of filing tax returns within the statutory time limit, the Commissioner of Social Security should revise SSA's publications for self-employed individuals to inform them about the need to file tax returns with self-employment earnings within 3 years, 3 months, and 15 days after the end of the calendar year in which their self-employment income was earned in order to get social security credit for those earnings.
Closed - Implemented
In December 1999, SSA updated Publication 05-10022, "If You Are Self-Employed," to include the recommended language.
Internal Revenue Service To reduce self-employed tax delinquencies, the Commissioner of Internal Revenue should undertake a pilot project to test the feasibility of sending notices to noncompliant self-employed taxpayers who in the current year had not made estimated payments and in the previous year had filed a Schedule Self-Employed and were assessed an estimated tax penalty.
Closed - Not Implemented
In June 2000, the IRS conducted a test similar to what GAO recommended, but for repeat nonfilers. The IRS found that sending notices did not significantly increase return filing and as such it did not perform a test for noncompliant self employed taxpayers.

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