Instructions for Form 1040-SE, Self-Employment Tax
Understand the function of Form 1040-SE for meeting your Social Security and Medicare tax obligations and how it integrates with your annual Form 1040 filing.
Form 1040-SE, Self-Employment Tax, is used to calculate the Social Security and Medicare taxes owed by individuals who work for themselves. While employees have these taxes handled through paycheck withholdings where the employer pays half, self-employed individuals are responsible for the entire amount. This covers both the employee and employer portions of the tax. The Social Security Administration uses the information from this form to calculate an individual’s future retirement or disability benefits.
Determining the Filing Requirement
You must file Schedule SE if you have net earnings from self-employment of $400 or more. This threshold applies to net profit from operating a trade or business as a sole proprietor, independent contractor, or a partner in a partnership, and is not based on gross income. For example, if a freelance graphic designer earns $10,000 in revenue but has $2,000 in business expenses, their net earnings are $8,000, which is well above the filing threshold.
A different threshold applies to income earned as a church employee. If you receive $108.28 or more in wages from a church or qualified church-controlled organization that is exempt from employer Social Security and Medicare taxes, you must file Schedule SE. This rule ensures these employees contribute to the system, but it does not apply to ministers or members of a religious order.
Information Needed to Complete Form 1040-SE
The primary figure needed is your net profit or loss from the business. Most self-employed individuals calculate this amount on Schedule C, Profit or Loss from Business, which details business income and expenses. Farmers use Schedule F, Profit or Loss from Farming, to find this figure.
If you also worked as an employee, you will need your Form W-2, Wage and Tax Statement. The total wages and tips from all W-2s are used to determine if the maximum earnings subject to Social Security tax have been reached. Wages earned as an employee count toward this limit and can reduce the amount of self-employment earnings subject to the Social Security tax.
Income from other self-employment sources must also be included, such as a partner’s share of income from a partnership reported on Schedule K-1 (Form 1065). If you operate multiple businesses, the net earnings from all of them are combined to determine your total self-employment income.
Calculating Self-Employment Tax
The calculation begins by multiplying your total net earnings by 92.35% (0.9235) to find the portion of your earnings subject to tax. This calculation accounts for the fact that employees do not pay FICA tax on the portion of their wages that their employer pays for FICA. This step effectively gives self-employed individuals a similar deduction.
The Social Security tax is 12.4% and applies to earnings up to the 2025 annual limit of $176,100; any W-2 wages you have are counted first toward this limit. The Medicare tax is 2.9% and applies to all of your taxable net earnings. Additionally, a 0.9% Additional Medicare Tax may apply if your net earnings from self-employment exceed certain thresholds: $200,000 for single filers, $250,000 for those married filing jointly, or $125,000 for those married filing separately.
These two tax amounts are combined to find your total self-employment tax. Schedule SE is also used to calculate the deduction for one-half of your self-employment tax. Depending on your situation, you may use either the Short Schedule SE or the Long Schedule SE; the long form is used if you have W-2 wages or use an optional method to calculate net earnings.
Reporting and Paying the Tax
Schedule SE is attached to your annual individual income tax return, Form 1040. The total self-employment tax you calculated is reported on Schedule 2, “Additional Taxes,” and is added to your total income tax liability.
The deduction for one-half of your self-employment tax is reported on Schedule 1, “Additional Income and Adjustments to Income.” This deduction lowers your adjusted gross income (AGI), which can reduce your overall income tax liability.
Because self-employment tax is not withheld from paychecks, it becomes part of your total tax due for the year. You are generally required to pay these taxes throughout the year as quarterly estimated tax payments using Form 1040-ES, Estimated Tax for Individuals. Making these payments helps avoid a large tax bill and potential underpayment penalties at tax time.