1. Money

Preparing Schedule SE for Self-Employment Tax Calculation

By

Schedule SE is used to calculate self-employment taxes (Social Security and Medicare tax) based on income of self-employed individuals and is added to the individual's Form 1040. Self-employment tax is equivalent to FICA tax (Social Security and Medicare taxes paid by employees and employers). The tax rate is the same (a total of 15.3% for self-employed individuals, and 7.65% for employers, 7.65% for employees). The maximum tax paid by any one individual is combined self-employment tax and FICA tax, up to the annual maximum for the Social Security portion. There is no annual cap on Medicare taxes.

Difficulty: Average
Time Required: About an hour, depending on the complexity of the situation

Here's How:

  1. These instructions are for a very simple Schedule SE for an individual with only Schedule C income from self-employment. Consult your tax professional for more complex situations.

    Where and How to File Schedule SE
    The information from Schedule SE is calculated and then the resulting calculation is included in several places on Form 1040:

    • Line 27, to reduce adjusted gross income by an amount equal to half of self-employment tax
    • Line 56, to show the amount of self-employment tax, for determining total tax liability for 2011
  2. To prepare Schedule SE you will need:

    • A copy of Schedule SE (PDF) downloaded from the IRS website (you can fill in the form online, save, and print)
    • Your completed Schedule C for each business you own.
    • A copy of any W-2 forms for the year, showing Social Security and Medicare compensation for the year (boxes 3 and 7)
    • Your individual income tax form (IRS Form 1040 or other)

    Long Form or Short Form?
    Schedule SE includes both a short form and long form. If you had no income other than your self-employed income (and you meet other qualifications), you may complete the short form in Section A. Otherwise, you must complete the long form in Section B.

  3. Completing the Short Form Schedule SE
    If you have no income described in item 1(a, b), start with Line 2, inserting the net profit from your Schedule C (if you have more than one Schedule C, total all and insert the total in Line 2). Total in Line 3.

    Line 4: Multiply Line 3 by 92.35%. If less than $400, you don't owe self-employment tax.

    Line 5. Calculate self-employment tax:

    • If $106,800 or less, multiply line 4 by 15.3%
    • If $106,800 or more, multiply the line 4 by 2.9% then add $13,243 to the result.
  4. Include Self-employment tax calculation on Form 1040

    • Enter the result from Line 5 on Form 1040, Line 56.
    • Line 6: Multiply Line 5 by 50% and enter of Form 1040, Line 27.
  5. Total all income on Line 6

    • Line 8 Add W-2 information on Social Security wages and tips and other wages subject to Social Security tax (Form 8919 is Uncollected Social Security and Medicare Tax on Wages)
    • Total Line 8 items on Line 8d
  6. Long Schedule SE (Section B)
    This section is the employment tax calculation for individuals who have income in addition to self-employment income. The calculation combines FICA tax already paid on other income and self-employed income to determine self-employment tax owed.

    • Line 1, enter net farm income (1a) and/or Social Security income(1b) and total
    • Line 2: Enter Net Income from Schedule C
    • Line 3: total Lines 1 and 2
    • Line 4(a) multiply Line 3 by 92.35%. If less than $400 you do not owe self-employment tax.
  7. Include FICA tax (Social Security and Medicare tax) already paid on wages, to determine if any self-employment tax is owed

    • Line 9: Subtract Line 8d from Line 7 (Social Security maximum amount). If zero or less enter -0- and go to Line 11
    • Line 10: Multiply the smaller line 6 or line 9 by 12.4$
    • Line 11: Multiply Line 6 by 2.9%
  8. Include Self-employment tax calculation on Form 1040

    • Add Lines 10 and 11 and enter the result on Line 12 and on Form 1040, Line 56.
    • Line 13 Deduction for one-half of self-employment tax: Multiply Line 5 by 50% and enter of Form 1040, Line 27.

Tips:

  1. Important Disclaimer
    The information on Schedule SE is for the purpose of showing how self-employment taxes are calculated. This information is very general and it is for individuals filing a very simple Schedule SE with no income other than wages paid as an employee, in addition to self-employment income on Schedule C. This How-To is not intended to be used for the purpose of completing a tax return without the assistance of a tax professional. This Guide is not an attorney or CPA or Enrolled Agent.

What You Need

  • A completed Schedule C for each business you own
  • Any W-2 forms from wages paid to you as an employee
  • A copy of your Form 1040

©2014 About.com. All rights reserved.