You may have heard about an IRS Schedule SE. But what does it mean and how do you file it? Don’t worry, we’ll cover both of these topics in our comprehensive article. Read on to learn more.
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- Why File Schedule SE
- Understanding the Form
- Information Needed
- How to File Schedule SE
Why File a Schedule SE
Are you one of the more than 9.6 million people in the United States who is self-employed? If so, you’ll need to report your income on a particular form from the Internal Revenue Service.
This document is named “Schedule SE”. Knowing the correct form to file will help you avoid overpaying your self-employment tax. The process is easier than you might think, especially with our helpful guide to follow.
In this article, we’ll walk you through everything you need to know about Schedule SE and how to file.
Understanding the Form
Before you file this form, you need a clear understanding of what the form is, whether this is the correct tax form for you, and what information you’ll include.
In this guide, we’ll look at:
What Is Self Employment Income?
Self-employment income is any amount of money that is earned without working for an employer. Working as a real estate agent, freelancer, or contractor results in earning self-employment income.
This income must be reported to the IRS using a unique form that is submitted along with Form 1040: Schedule SE.
Why is self-employment income treated differently than employer income?
In the United States, most paychecks from an employer already have Medicare, Medicaid, and Social Security taxes taken out. The employer pays an equal part of those taxes for each employee. But self-employment income is different.
Medicare, Medicaid, and Social Security taxes are not automatically taken out of self-employment income. On top of this, there is no “employer” to help match the amount of these taxes that are due.
The result is that self-employed individuals are responsible for paying the full amount of these 3 taxes. That’s why the IRS treats this type of income differently than income earned from an employer.
What Is Schedule SE?
The Schedule SE tax form is an additional form submitting along with Form 1040. It shows the IRS exactly how much self-employment income — your net earnings — you earned in the last tax year.
It also helps you figure out how much money you owe in Social Security, Medicaid, and Medicare taxes. When you submit this tax form, it’s used by the Social Security Administration to help determine your social security benefits, no matter what your age is.
Who Should File Schedule SE?
If you earned $400 or more in self-employment income during the last tax year, you must file Schedule SE for Form 1040. If you earned $108.28 or more in church employee income in the previous tax year, you must file Schedule SE.
Common examples of people who file this tax form include:
What if you have more than one business?
All self-employment income will be reported on the same form. You just need to combine your net earnings on the form to report it.
What is considered church employee income?
If your employer is a tax-exempt church, and you are not a minister, practitioner of Christian Science, or a member of a religious order, you are considered a church employee.
Your income is considered self-employment income because an equal share of your Medicare, Medicaid, and Social Security taxes are not paid by your employer.
Income for ministers, preachers, Christian Science practitioners, and members of a religious order is not considered church employee income.
Short Schedule SE vs. Long Schedule SE
There are two versions of this form located on the same page. Section A, or Short Schedule SE, consists of just 6 lines. Section B, or Long Schedule SE, is a little more complicated.
How do you know which version you should fill out?
- If you only earned self-employment income during the tax year, use Short Schedule SE.
- If you earned self-employment income and income from an employer, use Long Schedule SE.
Information You Need to File
Before you sit down to file your taxes, having all the information you need can help the process go more smoothly. You will need the following information (as it applies):
How to File Schedule SE
Now that you know who should file the IRS Schedule SE, you should understand how to do it. After all, this is the most complicated part! We’ve made it easy for you by breaking down the entire process in detail.
- You can open the form as a PDF here: Schedule SE (Form 1040 or 1040-SR)
- View the full form instructions as a PDF here: Schedule SE Instructions
Self Employment Tax Deductions
Remember to take any tax deduction that is available to you. Tax deductions reduce the amount of taxable (net) income you are responsible for paying taxes on. Self-employment deductions can help reduce the overall amount of taxes due.
Half of the self-employment tax amount (50%) you determine you owe is deductible. This is the portion an employer would typically pay under those circumstances.
Any deduction you claim should be listed on Line 6 of the Short Schedule SE or Line 12 of the Long Schedule SE. On Form 1040, you’ll list it on Line 27.
Section B: Long Schedule SE
If you worked for yourself AND for an employer during the tax year, this is the version you will use. It helps ensure that you don’t pay additional taxes on the income you earned.
This often happens because you report income from an employer as self-employment income. Make sure you have your W-2 on hand when you complete this section.
Part 2: Optional Methods to Figure Net Earnings
If you had very little self-employment income – which the IRS calls any amount over $400 but less than $5,280 – you might use this part to help you gain more social security coverage later on.
It might increase your self-employment tax, so don’t use it unless you’re sure it will be beneficial.
So, Should You File Schedule SE?
If you earned income as a self-employed professional in the last tax year, you need to use Schedule SE to report that income and make sure you pay the right amount of taxes on it.
Some people find it helpful to save money throughout the year or pay tax amounts in quarterly installments to prepare for paying taxes. Tax time doesn’t have to be stressful for people who are self-employed.
Taking the time to review what information is needed, what you can deduct, how the form should be filled out, and what kind of taxes you will be responsible for paying can help you quickly and accurately do your taxes as a self-employed professional.