How to File Schedule SE for Self-Employment Tax

Self-employed individuals pay their own Social Security and Medicare taxes using IRS Schedule SE, Self-Employment Tax. This form calculates the tax due on earnings that do not have taxes withheld by an employer. Filing this schedule is a standard part of the annual tax return for anyone who works for themselves, ensuring they contribute to these federal programs.

Who Must File Schedule SE

Filing Schedule SE is a requirement for individuals with net earnings from self-employment of $400 or more. Self-employment income is broadly defined and includes profits from a business you operate as a sole proprietor, which is reported on Schedule C. It also encompasses your share of income from a partnership, detailed on a Schedule K-1 (Form 1065), or profits from farming reported on Schedule F. If your earnings from these activities meet the filing threshold, you must file Schedule SE.

Information Needed to Complete the Form

Before beginning Schedule SE, you must gather several financial documents. The most important figure is your final net profit or loss from your business activities, which is calculated on other forms first. For most, this will be the net profit found on line 31 of Schedule C, while for farmers, it is the net farm profit from line 34 of Schedule F.

If you are a partner in a business, you will need your Schedule K-1 (Form 1065), as the amount in box 14 with code A is your income subject to self-employment tax. It is also necessary to have any Form W-2s you received from traditional employment during the year. The total wages from these forms are needed to determine if you have already met the annual Social Security wage base limit, which affects which part of Schedule SE you will complete.

Completing the Schedule SE Calculation

The calculation of your self-employment tax begins with your total net earnings. For those using the Short Schedule SE (Section A), the first step is to multiply total net earnings by 92.35%. This adjustment accounts for the deduction of one-half of your self-employment taxes, making only this reduced amount subject to tax. This step effectively treats a portion of your earnings as an employer’s contribution.

The self-employment tax consists of two parts. The Social Security tax is 12.4% and applies to the first $168,600 of your combined wages and net earnings for the 2024 tax year. The Medicare tax is 2.9% and applies to all of your net earnings. An additional 0.9% Medicare Tax may apply if your earnings exceed certain thresholds: $200,000 for single filers, $250,000 for married filing jointly, or $125,000 for married filing separately.

You must use the Long Schedule SE (Section B) if you also have wages from an employer reported on a Form W-2, as this income counts toward the annual Social Security limit. Using the long form ensures you do not overpay Social Security tax by subtracting your W-2 wages from the limit before calculating the tax. The final outputs of either section are your total self-employment tax and the deductible portion.

Using the Optional Methods

Schedule SE includes optional methods that can be beneficial under specific circumstances. These methods are designed to help individuals with low profits or a net loss for the year still earn credits toward their Social Security and Medicare coverage, which is important for future retirement or disability benefits.

There are optional methods for both farm and nonfarm income, though eligibility depends on your income history and other factors. For instance, there is a lifetime limit on how many times you can use the nonfarm optional method. These methods allow you to use gross income to calculate a set amount of net earnings, which then becomes the basis for your self-employment tax. Because the rules and income thresholds change, consult the current year’s Schedule SE instructions to determine eligibility.

Reporting the Results on Form 1040

Once you have completed Schedule SE, you must transfer the final figures to your main tax return, Form 1040. The form generates two numbers that are reported in different places on your return.

The first figure is the deductible portion of your self-employment tax, which is one-half of your total self-employment tax. This amount is an adjustment to your income and is reported on line 15 of Schedule 1 (Form 1040). The second figure is the total self-employment tax you owe, which is added to your income tax liability and reported on line 4 of Schedule 2 (Form 1040).