I concur with your interpretation.
Only the statutory notary fees per notary act are exempt from self-employment taxes per Treasury Regs. 1.1402(c)-2(b)(2). However, notary fees are still included in AGI (Adjusted Gross Income) for the purpose of calculating income tax.
For example, in NY, a fee of $2.00 per notarial act (i.e.: acknowledgement or jurat) would be exempt from SE tax; the SE-exempt amount would still be included on Schedule C/C-EZ and count towards the schedule total, and thus, total income.
FYI, I am also an Enrolled Agent. However I specialize in research (legal briefs, private letter rulings/advance determinations and a priori defense), representation, remediation (fixing others' errors) and litigation (Tax Court petitions and motion practice, both for federal and certain states).
Most of my clients are CPA's, other EA's or attorneys, and use my firm's work in litigation or audit, thus we always must cite our basis for a position. To paraphrase a song, "If I can't cite a thing, my butt's in a sling."
To make it clear, consider the following scenario:
A 20 page mortgage or deed of trust is notarized only on the signature page;
The mortgage/deed of trust is accompanied by a note, again 20 pages with acknowledgement on only the signature page;
The transaction is supported by a number of documents which the notary must present to the signer, but not all notarize (let's say yet another 20 pages, with 3 acknowledgements/jurats on single page documents); and
Let's assume the fee was $60, to make things nice and even.
So, we have:
Notarial fees of $10 (5 acts x $2 each), not subject to self-employment tax;
Signing agent fees of $50 ($60-$10 notarial fees), subject to self-employment tax; and
Schedule C/C-EZ sales of $60 (both SE-Exempt and non-exempt), included in AGI/taxable income
Expenses (print, phone, mileage, government fees, etc..) would be captured on the Schedule C/C-EZ, which 'bubbles up' to Schedule 1, Line 12.
How to Report:
If the taxpayer had no other income subject to SE tax (which would rarely be the case) :
- Report SE-exempt notary fees either on Line 21/other income (with no offsetting expenses) or Schedule C/C-EZ;
- Enter "Exempt-Notary" on Schedule 4 (Form 1040), line 57; and
- Do not file Schedule SE.
If the taxpayer had other earnings of $400 or more subject to SE tax:
- Schedule C /C-EZ, Line 1 would include all signing agent revenue (SE-exempt or otherwise), allowing the notary fees to be included in income tax.
- Enter "Exempt-Notary" and the amount of their exempt notary public fees.from on the dotted line to the left of Schedule SE, line 3. The taxpayer should then subtract that amount from the total of lines 1a, 1b, and 2, and enter the result on line 3. This would decrease SE tax by the appropriate amount.
Readers of this post may feel free to share this information with their tax advisers; they may choose to research the citation for themselves.