If you hold a government office and are paid from fees collected from the public rather than a salary, fee-basis public official taxes work differently from ordinary employee taxes in two ways: you can deduct your business expenses above the line under IRC Section 62(a)(2)(C), and you may owe self-employment tax on the fees under IRC Section 1402(c)(1) unless a Social Security coverage agreement covers your position. Which rules apply, and in what combination, depends on how your compensation is structured and whether your state has extended Social Security coverage to your office.
Who Counts as a Fee-Basis Public Official
Federal regulations define a “public office” as any elective or appointive office of the United States, a state, a political subdivision of a state, the District of Columbia, or a wholly owned government instrumentality. Governors, mayors, state legislators, county commissioners, judges, justices of the peace, sheriffs, constables, registrars of deeds, and notary publics all fit. The position must be created or authorized by a constitution, statute, charter, or ordinance, and the officeholder exercises delegated governmental authority independently rather than under a supervisor’s direct control.
The “fee basis” piece means the compensation flows directly from the people using the service rather than from a government payroll. A notary who keeps the fees for notarizing documents, a justice of the peace who collects for performing marriages, a constable who charges for serving legal papers: each is paid by the service user, even when the government sets the fee schedule.
The Two Different Fee-Basis Tests
The tax code uses two different compensation standards, and confusing them costs money in both directions.
For the above-the-line business expense deduction, IRC Section 62(a)(2)(C) applies to officials compensated “in whole or in part” on a fee basis. A small government salary alongside your fees does not disqualify you from deducting fee-related expenses.
For self-employment tax, IRC Section 1402(c)(1) applies only to officials compensated “solely” on a fee basis. Any salary from the government generally pulls the position outside the self-employment tax rule. Read the two standards carefully before you decide what you owe or what you can deduct.
Deducting Your Business Expenses Above the Line
IRC Section 62(a)(2)(C) survived the Tax Cuts and Jobs Act’s suspension of miscellaneous itemized deductions, so fee-basis officials keep a benefit most employees lost. You subtract ordinary and necessary business expenses directly from gross income, reducing adjusted gross income before the standard or itemized deduction is applied. The deduction works whether or not you itemize.
Eligible expenses are the same categories any business would incur in connection with the office: travel for official duties, office supplies, specialized equipment, postage, professional liability insurance, and continuing education required for the position. Each expense has to be directly tied to the performance of your official duties. Personal spending that happens to overlap with your role does not qualify.
Mechanically, you compute the expenses on Form 2106 and carry the result from line 10 to Schedule 1 (Form 1040), line 12. Attach Form 2106 to your return.
Records You Need to Keep
The IRS does not accept estimates. Keep an account book, diary, or log that records each expense at or near the time you incur it, along with receipts, canceled checks, or invoices showing the amount, date, place, and nature of the expense. A weekly log counts as timely. Travel and vehicle expenses have stricter rules: dates, destinations, business purpose, and mileage for each trip. Receipts are not required for non-lodging expenses under $75 or for transportation where a receipt is not readily available. Hold everything for at least three years from the filing date. Without documentation, the IRS will disallow the expense in an audit even if you actually incurred it.
Self-Employment Tax and Section 218 Coverage
The general rule in IRC Section 1402(c) is that holding public office is not a “trade or business” for self-employment tax purposes. The exception is narrow but important: if you hold a state or local office, are compensated solely on a fee basis, and your position is not covered by a Section 218 agreement between your state and the Social Security Administration, your fee income is treated as self-employment income.
Section 218 agreements are voluntary arrangements that extend Social Security and Medicare coverage to government employees. If one covers your position, your government entity handles FICA withholding the same way a private employer would, and you owe no self-employment tax on the fees. Ask your local treasurer’s or human resources office whether a Section 218 agreement covers your office before you assume either way.
What You Owe When No Agreement Covers You
If you are paid solely by fees and no Section 218 agreement applies, self-employment tax runs 15.3%: 12.4% for Social Security on net earnings up to $184,500 in 2026, plus 2.9% for Medicare on all net earnings with no cap. Calculate the tax on Schedule SE using net earnings after business expenses.
You can deduct the employer-equivalent portion (half of the total self-employment tax) as an adjustment to gross income on Form 1040. That deduction lowers your income tax, but it does not reduce your self-employment tax or your net earnings from self-employment.
Medicare-Only Situations
Some officials owe Medicare tax but not Social Security tax. This applies when a position is excluded from Social Security under a Section 218 agreement but the officeholder was hired or rehired after March 31, 1986, the point at which federal law began mandating Medicare coverage for state and local government employees regardless of their Social Security status. In that case, the government entity withholds the 1.45% Medicare employee share and no self-employment tax applies.
Notary Publics: A Separate Rule
Notaries sit outside the usual framework. Federal regulations specify that notary public services cannot be the subject of a Section 218 agreement because notaries are not “employees” under the Social Security Act. You might expect that to make notary fees self-employment income by default; the regulation reaches the opposite result. Because notary services are structurally ineligible for Section 218 coverage rather than merely uncovered, notary fees do not constitute a trade or business and are exempt from self-employment tax. If you are a notary who also holds a separate fee-basis office, your notary income and your other fee income can receive different tax treatment on the same return.
Quarterly Estimated Tax Payments
No one is withholding income tax or self-employment tax from your fees, so you are generally required to make quarterly estimated payments. The underpayment penalty kicks in if you owe $1,000 or more after subtracting withholding and refundable credits.
For tax year 2026, the deadlines are:
- First quarter: April 15, 2026
- Second quarter: June 15, 2026
- Third quarter: September 15, 2026
- Fourth quarter: January 15, 2027
You can skip the January 15, 2027 payment if you file your full 2026 return and pay the balance by February 1, 2027.
Two safe harbors keep you clear of the penalty. Your total payments must equal at least 90% of your current-year tax or at least 100% of the tax shown on your prior-year return, whichever is smaller. If your prior-year adjusted gross income exceeded $150,000 ($75,000 if married filing separately), the prior-year safe harbor rises to 110%. Fee income that swings from year to year makes the 90% current-year test hard to hit accurately, so the prior-year method is often the more predictable choice. If your income arrives unevenly during the year, the annualized installment method lets you match payment amounts to when you actually earned the money.
Forms You’ll File
Most fee-basis officials use some combination of these forms:
- Schedule C (Form 1040) reports fee income and business expenses when the fees are treated as self-employment income.
- Form 2106 calculates business expenses for the above-the-line deduction, with the result carried to Schedule 1 (Form 1040), line 12.
- Schedule SE (Form 1040) computes self-employment tax on net fee earnings when no Section 218 agreement covers your position.
- Form 1040-ES provides the worksheet and vouchers for quarterly estimated payments.
- Form 1040 is the return where everything comes together.
Keep a detailed log throughout the year of every fee collected, including date, amount, payer, and service. For 2026, the reporting threshold for Forms 1099-NEC and 1099-MISC rises to $2,000 from the $600 threshold in prior years. You may not receive a 1099 for smaller amounts, but you must report all fee income whether or not a payer sends one. Reconcile any 1099s you do receive against your own records before you file, and hold a complete copy of the return with supporting documents for at least three years.