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Deferral of SE tax

My understanding of the whole "deferral of FICA tax" COVID thing was that it was an option, not required, and that it was probably best NOT to opt in, unless the employer was financially hurting, and needed the extra time to pay those taxes. That's what I was hearing from several colleagues.

But now, filling out self-employment clients' returns, it seems that SE clients are being REQUIRED to defer their SE tax? Am I missing something? Did I do all the payroll wrong the last 3 quarters? If I'm correct that this is optional, how do I opt out of it on the Form SE? (Or is it only optional if you're incorporated, and not optional if you're self-employed?)

Great Hera, this is going to be a crazy year. Is it too late to retire?

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60 Comments 60
Just-Lisa-Now-
Level 15
Level 15
not required, just enter 0 on Line 18 of the SE worksheet

♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪
masterfgoku55
Level 1


Max deferral line 18 is too large

i have entered 0 but it keeps saying 


Max deferral line 18 is too large

any help with that?

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masterfgoku55
Level 1

What i ended up doing was living it blank and so i was able to finish it.

qbteachmt
Level 15

Are you using ProSeries to prepare your clients' tax returns? If not, you seem to be lost on the internet.

You’ve come to a Peer User community for Intuit Tax Preparation products supporting tax preparation professionals using ProSeries, Proconnect and Lacerte , and you may be looking for support as an individual taxpayer. Please visit the TurboTax Help site for support.

Thanks.

 

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I'm not sure who this was directed to?

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Vika K
Level 2

Sorry, a bit late response, but that's what I did too- just left it blank, and was able to go forward.

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am52
Level 1

Leave it "BLANK"

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abctax55
Level 15

Sch SE deferral for a sole proprietor has *nothing* to do with payroll tax returns.

Apples/Oranges


#StandWithUkraine

Hi abctax55. I guess I wasn't clear.

If an employer were going to defer, that deferral would happen on the payroll tax return (Form 941). So I was nervous, thinking that if the deferral was required, then I filed all my 941s wrong.

The Form SE says "Enter the portion of line 3 that can be attributed to March 27, 2020, through December 31, 2020." It isn't phrased in such a way that it sounds optional. The software doesn't phrase it in such a way that makes it sound optional. If I enter 0, that makes it sound like all their self-employment was between January 1 - March 26, which is false. Call me paranoid, but I get nervous putting something on a tax form that isn't true.

But if y'all tell me that I can put 0 there, I'll put 0 there.

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Just-Lisa-Now-
Level 15
Level 15

Maybe I need to go back and read it again, I just know putting zero made none of it be deferred LOL


♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪
Just-Lisa-Now-
Level 15
Level 15

OK, I see how to get rid of the deferral I think.  Putting 0 on Line 18 of that form isnt correct.

Go to the 1040/1040SR worksheet and scroll down to the Deferral for Certain Sch H and SE Filers smart worksheet looking box, Line 11 put a zero and nothing will flow to Sch 3 Line 12e.

If you do choose to defer, Im not seeing a spot on the Carryover worksheet for the deferred portion to carryover to 2021, so I dont think this part of the program is completely updated yet.

 


♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪
rbynaker
Level 12

Good job Lisa!

I just went down that rabbit hole and tried to follow the flow on all of the forms.  You end up in a worksheet on the 1040 instructions to Schedule 3.  Line 10 says:

"You can defer payment on up to the amount on line 10 until 12/31/2021
or 12/31/2022 by reporting the amount on line 10 above (or a smaller amount)
on line 12e of Schedule 3 (Form 1040)"

and then Line 11 of that worksheet:

"Enter the amount you reported on Schedule 3, line 12e"

Are we having fun yet!?!

Edit: https://www.irs.gov/pub/irs-pdf/i1040gi.pdf

See PDF page 102.

Just-Lisa-Now-
Level 15
Level 15
Did you see anywhere that the carryover to 2021 or 2022 is recorded? Feels like its missing some pieces still.

♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪
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rbynaker
Level 12

Same worksheet, lines 13 and 14.

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Just-Lisa-Now-
Level 15
Level 15
But thats not on the actual return, its not even an actual worksheet, is it?

If you pick up a new client in 2021 or 2022, how will you know if they had this deferral?

♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪
rbynaker
Level 12
If you pick up a new client in 2021 or 2022, how will you know if they had this deferral?

Best I can tell, there's no way to know.  I did find this section in the instructions for Schedule 3 Line 12e interesting:

"If you file Schedule H or Schedule SE, you can defer some of the
household employment and self-employment tax payments you may owe on
your 2020 tax return and pay them later
instead. However, you can't defer
amounts that you have already paid."

Does that mean they'll use any refund on the 1040 to offset the deferral?  What a mess!

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Just-Lisa-Now-
Level 15
Level 15

Oh, I guess if you pick up a new client and you see a figure on 2020 Sch 3 Line 12e, then you know that 2021 and 2022 will have the same figure.

I will NOT be encouraging any of my clients to defer these taxes.


♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪
qbteachmt
Level 15

"If an employer were going to defer, that deferral would happen on the payroll tax return"

And that wording also warns the employer that any amounts already paid in through the 941 deposit process cannot be refunded for that period where you would have wanted to keep the money (defer deposit), as an afterthought process (when filing the form 941 or 944).

" "However, you can't defer amounts that you have already paid."

Does that mean they'll use any refund on the 1040 to offset the deferral?"

It means the other way around. Think of this as a step towards parity for the self-employed to get to the same place as employers and employees for these deferrals.

"30. Is a self-employed individual who defers 50 percent of the Social Security tax on net earnings from self-employment income, or a household employer that defers the employer's share of Social Security tax under section 2302 of the CARES Act, eligible for a refund of the deferred amount of tax at the time the taxpayer files its Form 1040, Individual Tax Return? (added July 30, 2020)

Generally, no. A taxpayer who has deferred his or her payment of the employer's share of Social Security tax or 50% of the Social Security tax on net earnings from self-employment under section 2302 of the CARES Act is not eligible for a refund due to the deferral because the deferral amount is a deferral of payment, not a deferral of liability. Therefore, the deferral itself does not result in an overpayment of taxes reported on Form 1040. However, if a household employer is eligible for advanceable paid leave credits under the FFCRA and reports those credits on Schedule H, Form 1040, the taxpayer may receive a refund of the paid leave credits even while deferring the employer's share of Social Security tax. This does not apply to credits for sick leave and family leave equivalent amounts for self-employed individuals.

Self-employed individuals and household employers should consider deferrals under section 2302 of the CARES Act in determining their estimated tax payments and any income tax withholding from wages and other sources of income. Publication 505, Tax Withholding and Estimated Tax for use in 2020 provides more details on determining these amounts."

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It is on the actual form -- Schedule SE, lines 18-23. If they deferred anything, it would show up there. If they didn't defer, that section would be $0. 

Still, what a mess. 

That's why we get the big bucks.

Terry53029
Level 12
Level 12

These are the 2020 instructions for form SE from IRS

Changes to Schedule SE (Form 1040).
New Part III has been added to Schedule SE to allow self-employed persons
to figure a maximum amount of self-employment tax payments which may be
deferred. All maximum deferral amounts will be carried to Schedule 3
(Form 1040), and the total amount that you may elect to defer may be further reduced.

Seems like section 3 is for folks that want a deferral, and if so fill out section 3. Personally I am only going to fill it out if someone wants a deferral. 

I think some of you are making it more complicated than is necessary. Just my 2 cents 

Just-Lisa-Now-
Level 15
Level 15
Sticking a zero in on the SE is easier anyhow.

♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪
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Vika K
Level 2

Just has this issue with line 11. It does not allowing put "0". Does not like it. I am breaking my head. Client does not want to defer anything. and his line 10 ended up being negative number. Anyone experienced this yet?

macca
Level 2

Just got this myself filing taxes, line 10 is negative.... appreciate anyone's help on this. It won't let me complete the review until this is fixed up otherwise tells me to submit via mail. 😞

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macca
Level 2

Got my answer on another thread. leave it blank!

angeldfj050818
Level 1

im not sire where im suppose to ask a question. i messed up on my refund i thought i was suppose to enter the amount in that time period i made on line 18. an now im worried will my tax return be takin

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qbteachmt
Level 15

@angeldfj050818 

"im not sire where im suppose to ask a question."

Not here, unless you are using the ProSeries tax preparation program to prepare your clients' tax return.

Otherwise, no one is using the program you are using, whatever it is.

You seem to be lost on the internet.

You’ve come to a Peer User community for Intuit Tax Preparation products supporting tax preparation professionals using ProSeries, Proconnect and Lacerte , and you may be looking for support as an individual taxpayer. Please visit the TurboTax Help site for support.

Thanks.

 

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michelleloper
Level 2

Does anyone know if we can add to the standard letter to show there has been a deferral of SE Tax until 12/31/21 and 12/31/22 and to show what the payments will be and when they need to be paid?  How will the client know what was deferred and when to pay, etc.?

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sariscpa
Level 4

Hey, Lisa, One of my clients got an underestimated tax penalty that's related to this issue.  He had the option to defer his 2020 SE tax but chose not to.  Proseries calculated his 2021 estimated tax payments on 110% of 2020 but did NOT include the amount he was entitled to defer as part of his tax even though he did not defer it.  So his payments were based on $8,537 less than the actual tax for 2020 x 110%.  IRS says he underpaid.  IRS FAQ #22 says

22. Is there a penalty for failure to make estimated tax payments for 50 percent of Social Security tax on net earnings from self-employment for the payroll tax deferral period?

No. For any taxable year that includes any part of the payroll tax deferral period, 50 percent of the Social Security tax imposed on net earnings from self-employment attributable to the payroll tax deferral is not used to calculate the installments of estimated tax due under section 6654 of the Internal Revenue Code. This means that self-employed individuals that defer payment of 50 percent of Social Security tax on their net earnings from self-employment attributable to the period beginning on March 27, 2020, and ending on December 31, 2020, may reduce their estimated tax payments by 50 percent of the Social Security tax due for that period.

Any idea who is correct on this?  IRS or Proseries?

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qbteachmt
Level 15

I think it's important to understand the Payment was deferrable. The tax was still owed. It's the due date that could be manipulated under the temporary provision. This is why people whose tax return ended with a refund found that the deferral was not being honored = because they have enough already paid in to cover that tax owed, there was no deferral function that would result in a refundable overpayment.

"This means that self-employed individuals that defer payment of 50 percent of Social Security tax on their net earnings"

Let's understand that the amount he was entitled to defer is moot for him, because he did not defer. The IRS is right: his safe harbor is 110% of his total tax from the prior year. He did not pay that amount.

Also, I think you are misunderstanding "the payroll tax deferral period" which refers to paying 1040ES for the periods from March 27, 2020 to Dec 31, 2020. That means for 2020 ES, the second, third and fourth quarters, for the most part, can be less than otherwise would have been computed, taking into consider the option to defer will be applicable to these payment periods. It isn't applicable to 2021 safe harbor.

It might help to understand this provision. For the self-employed person, to give them parity to employer/employees, the typical employer Social Security component of a FICA deposit would have been owed and payable. The CARES Act provision meant the employer did not have to make that deposit, and even allowed them to defer collecting for that specified period from the employees' wages.

Nothing here applies to 1040 ES for 2021 safe harbor. Remember that the SE tax is still part of taxes Owed. They just optional were not fully Due.

The Estimate is always based on what we know applies and what we project. If you were shooting for safe harbor, and your taxpayer did not defer, then your taxpayer should have used the full 110%

 

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sariscpa
Level 4

I believe your interpretation to be fair, however, it seems illogical to me that the taxpayer should have to pay a penalty for paying their taxes (for 2021) late because they chose not to defer (in 2020.)  Either Proseries agrees or they have an error in the software (it wouldn't be the first time!)  Either way I am going to fight this and I am going to have to answer about 75 IRS notices on this issue.  How do I get an explanation from Proseries as to their error, or a statement from them if they believe there was no error in the calculation?  

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Just-Lisa-Now-
Level 15
Level 15
How much $$ is this est penalty that youre disputing?

♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪
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sariscpa
Level 4

Most of them are coming to $186.  I have about 50-75 of them!  I guess I don't know how many yet until the notices start to come in.

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qbteachmt
Level 15

Your client isn't being penalized for paying late because they chose not to defer. The provision has nothing to do with 2021.

To summarize the ProSeries error: the Safe Harbor computation against 2020 taxes for 2021 estimates used a reduced tax amount, deducting the 50% deferrable amount, even if a person did not defer it and even though that doesn't apply to 2021 at all. That means ProSeries is wrong for any taxpayer, because that provision as you quoted was for paying the amount owed in 2020 against the quarter it was owed in 2020, and this results in not meeting a safe harbor not being a problem, because in 2020, there would be no penalty for paying less with the provision available that you didn't need to pay it all in 2020, anyway.

2020: you owe what you owe, but don't have to pay as you go, because of the CARES Act. If you paid safe harbor and came out less than this target, as long as you did not drop below that deferral amount, you were fine, after all.

2021: Nothing about the CARES Act affects Estimates or safe harbor.

 

ProSeries using the info for computing 2021 safe harbor would be the error, no matter what the taxpayer chose in 2020.

 

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sariscpa
Level 4

qbteach: You nailed it!  Proseries created the error.  The "cross reference instructions " in Proseries for Form 2210 Line 2 in the 2020 software says "From Schedule SE, line 12 minus line 26...."  I was surprised when I read the IRS instructions for the same line it nowhere says to reduce by Line 26 of Schedule SE.  

I spent 5 hours on the phone with Proseries this morning and have 2 cases open and escalated.  Their position so far is that I should have reported zero on Schedule SE Line 18 and that would have made the estimated tax payments for 2021 calculate correctly.  I tried to explain to them that Line 18 is not a discretionary number and entering zero on that line would be filing a false tax return but they don't get it.  All they know is that the software is "calculating correctly."

Anyone have a good lawyer?

 

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qbteachmt
Level 15

"in Proseries for Form 2210 Line 2 in the 2020 software says "From Schedule SE, line 12 minus line 26....""

"I was surprised when I read the IRS instructions for the same line it nowhere says to reduce by Line 26 of Schedule SE."

Here: https://www.irs.gov/pub/irs-prior/i2210--2020.pdf

Line 2
Enter the total of the following amounts.

IF you file...
THEN include on line 2 the amounts on...
1040 or
1040-SR

Schedule SE (Form 1040):

Line 12 minus line 26,

And then, for 2021 safe harbor lookback, to  confirm enough Est was paid in for safe harbor, there are lots of additional adjustments and provisions:

https://www.irs.gov/pub/irs-prior/i2210--2021.pdf

Line 8
To figure your 2020 tax, first add the amounts listed in (1) below, then
subtract from that total amount the refundable credits listed in (2), later,
that are shown on your 2020 tax return

 

What I see is the mixup of tax year.

For 2020, the amount that should have been paid in for safe harbor is adequate as long as it works with the math of current year/prior year (standard safe harbor provision) Total tax owed minus the SE deferral provision amount, even if not using that option.

For 2021, the only issue is to figure the amount that safe harbor would be based on, not reducing it for SE tax (which was owed and just the payment was the deferral), and adjusting for the various credits that would not be part of 2021.

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Sa Tax
Level 1

Line 18 will determine if you would like to have more time to pay your self-employment tax ( Eligibility is based on whether you paid household employees or had self employment income, when you earned that income, and whether you owe taxes this year.) If you enter a number there you will have time to pay self-employment tax on a later date. Therefore enter 0 in line 18 and you will be opting out of this option. 

On another note if you did not earn self-employment income or pay household employees in 2020, you are not eligible for this deferral.

qbteachmt
Level 15

@Singing Tax Lady 

"I'm not sure who this was directed to?"

 

Your topic here for how to use ProSeries for the client's data, has now been hijacked by what appears to be TurboTax users. They seem to be trolling the Lacerte, ProSeries and ProConnect community.

They don't seem to realize that to Help Each Other, as a Community, they should go to the TurboTax Community forums, here:

https://ttlc.intuit.com/community/discussions/discussion/03/302

 

And instead, are interfering with your ability to do your job for your clients.

 

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angeldfj050818
Level 1

i added my actual income in that line im so worried will they take my return?

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mensahno
Level 1

Entering zero solves it immediately.

zanie
Level 2

I have a client that is self employed and chose the SE deferral. When she got her refund it was exactly shorted the amount of the deferral. She called the IRS and they told her that she didn't qualify and that they needed some kind of documentation. I filed her taxes on February 12 and the Proseries program automatically put the data in for the deferral. They told her that their mess up was that she should have gotten a letter. Anyone having this experience?

Just-Lisa-Now-
Level 15
Level 15

@zanie wrote:

I have a client that is self employed and chose the SE deferral. When she got her refund it was exactly shorted the amount of the deferral. She called the IRS and they told her that she didn't qualify and that they needed some kind of documentation. I filed her taxes on February 12 and the Proseries program automatically put the data in for the deferral. They told her that their mess up was that she should have gotten a letter. Anyone having this experience?


No, it didnt automatically put it in for deferral, you entered the wages that taxes could be deferred on, and then you didnt opt out.

If they had a refund, you cant defer, the money was already paid in, so they reduced the refund.


♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪
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zanie
Level 2

👍

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qbteachmt
Level 15

"If they had a refund, you cant defer, the money was already paid in, so they reduced the refund."

I'm not clear on what good these topics are, when people find them later and don't seem to read all the info already here. Perhaps these things should just go away after a few months.

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zanie
Level 2

I am grateful for all sharing and glad the community doesn't go away.

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Mike Chaput
Level 1

Newsflash

 

Another intrinsic flaw in the multi thousand software.

 

Beware of the SE deferral and Proseries handling thereof.  Garbage India based programmers - garbage out.

 

If the deferral is over 0 your clients refunds will be adjusted and mega delayed by the IRS.....who knows - maybe a formal review.

 

Thanks Intuit....guess you want folks to buy TurboTax as you are putting me out of business.

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qbteachmt
Level 15

@Mike Chaput 

Newsflash: the IRS tells you this is what happens. Intuit has nothing to do with it. Why would you even think that? Did you read the info provided in this topic?

Are you using IRS resources:

https://www.irs.gov/newsroom/deferral-of-employment-tax-deposits-and-payments-through-december-31-20...

"30. Is a self-employed individual who defers 50 percent of the Social Security tax on net earnings from self-employment income, or a household employer that defers the employer's share of Social Security tax under section 2302 of the CARES Act, eligible for a refund of the deferred amount of tax at the time the taxpayer files its Form 1040, Individual Tax Return? (added July 30, 2020)

Generally, no. A taxpayer who has deferred his or her payment of the employer's share of Social Security tax or 50% of the Social Security tax on net earnings from self-employment under section 2302 of the CARES Act is not eligible for a refund due to the deferral because the deferral amount is a deferral of payment, not a deferral of liability. Therefore, the deferral itself does not result in an overpayment of taxes reported on Form 1040. However, if a household employer is eligible for advanceable paid leave credits under the FFCRA and reports those credits on Schedule H, Form 1040, the taxpayer may receive a refund of the paid leave credits even while deferring the employer's share of Social Security tax. This does not apply to credits for sick leave and family leave equivalent amounts for self-employed individuals.

Self-employed individuals and household employers should consider deferrals under section 2302 of the CARES Act in determining their estimated tax payments and any income tax withholding from wages and other sources of income. Publication 505, Tax Withholding and Estimated Tax for use in 2020 provides more details on determining these amounts."

That's already in this topic. It helps to Read the forum you seem to want to flag with your complaint, in case you didn't truly understand the situation.

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Mike Chaput
Level 1

Newsflash Intuit Drone;;;;; WORKER counter truth spy

 

Tail not connected to the Rat  ?

 

Intuit Proseries Rep informed me 2:16pm Eastern Time (US not India Programmer Time) -

 

KNOWN PROBLEM WORKING ON YET ANOTHER PATCH. Should be out tomorrow.

 

How's the KOOLAID Now?

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qbteachmt
Level 15

I like iced tea better than Koolaid, so thanks for the offer anyway.

I provided you with the IRS link and the IRS text. Perhaps you need to take this up with the IRS?

Because any Intuit person that told you the Deferral would be honored for an overpaid condition, is wrong. In other words, you stated this incorrectly:

"If the deferral is over 0"

and your client has paid in enough to cover some of that deferred amount...

"your clients refunds will be adjusted"

Your client's refund is reduced by the amount they owed, because the deferred amount is not Refundable.

Fixed it for you.

"and mega delayed by the IRS.....who knows - maybe a formal review." <== now that's jut inflammatory. Did you threaten your Clients with IRS action like this? I'm sure that really helps give them peace.

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Mike Chaput
Level 1

No Intuit person said anything about lost refund money. Just miscalculations.

The Intuit software compelled the users to enter an amount in the field everyone is referencing.  It would not allow 0. It had a range of amounts it would take.

Any amount entered over zero is being adjusted by the IRS.

The IRS Agent I spoke with today on the Practitioner Hotline said several software companies were having trouble with this field.

This is your software. Any return with a Schedule C with an SE Tax is funneled into this field.

Listen, the VID has been a catrastro-f$%# for the IRS, the software companies and the preparers and I regret my harsh words. 

What to I enter into Schedule SE-T, Part III Line 18 for returns with a Schedule C profit? The form states if zero leave blank.  Intuit Proseries 2020 won't let you do that my friend.

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