Schedule SE explained
Self-Employment Tax (Form 1040)
Schedule SE computes the Social Security and Medicare tax owed on self-employment earnings, which an employer would otherwise have withheld. Half of the resulting tax is then deductible as an adjustment to income.
- Who files it
- Anyone with net earnings from self-employment of $400 or more in the year, including sole proprietors, independent contractors, and partners with self-employment income on a K-1.
- Where it goes
- The IRS, attached to Form 1040.
- When it is due
- The individual return's deadline, so ordinarily 15 April.
- What it is not
- It does not compute income tax. Self-employment tax is separate from and in addition to income tax on the same earnings.
What it reports
The first step is the part that surprises people, and everything after it follows from that one number.
| Step | What it reports |
|---|---|
| Net earnings | Net profit multiplied by 92.35%. The reduction mirrors the employer's half of employment tax, which an employee never pays on and never sees. |
| Social Security portion | 12.4% of net earnings, up to that year's Social Security wage base. W-2 wages already taxed count against the same base. |
| Medicare portion | 2.9% of net earnings, with no cap. An additional Medicare tax applies above a threshold. |
| The deductible half | Half the total carries to Schedule 1 as an adjustment to income, reducing income tax but not self-employment tax. |
The two halves an employee never sees
An employee pays 6.2% Social Security and 1.45% Medicare, and the employer pays the same again. A self-employed person is both parties, which is where 12.4% and 2.9% come from. The 92.35% step and the deduction of half the tax exist to put the two situations back on comparable footing.
W-2 wages use up the same wage base
Someone with a job and a side business does not pay Social Security tax twice on the same base. Wages already taxed reduce the amount of self-employment earnings still subject to the Social Security portion. The Medicare portion has no cap and applies to all of it.
Rates, thresholds, and dollar limits change every year. Read the current-year instructions for the figures.
LedgerBox does not read this form
LedgerBox does not read Schedule SE. It reads the invoices, receipts, and bank statements the net profit behind it is computed from.
Form Schedule SE questions
Do I file Schedule SE with no profit?
Not if net earnings are under $400. A loss produces no self-employment tax, and the schedule is not required.
Is self-employment tax the same as income tax?
No. They are separate taxes on the same earnings, computed on different schedules, and both are owed.
Does a partner pay self-employment tax on K-1 income?
A general partner does, on their share of ordinary business income and on guaranteed payments. A limited partner's distributive share is generally not subject to it.
Read next
- Schedule 1 Where the deductible half of the tax is claimed.
- Form W-2 The employee equivalent, and where the two interact.
- Receipt data extraction The expense records net profit is computed from.
Reference pages on the forms that arrive with a set of books. Every form in the glossary