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 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 self-employment income is
- What Schedule SE is
- Who needs to file this form
- Short Schedule SE vs. long schedule SE
- Information you need to file
- Self-employment tax deductions
- Step-by-step instructions on how to file Schedule SE
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:
- Real estate agents
- Daycare owners
- Freelancers
- Contractors
- Certain church employees
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):
- Your total net earnings in self-employment income for the tax year
- Your W-2 (if you worked for an employer during the same tax year you earned self-employment income)
- Net profit or loss amounts. These may be from:
- Schedule C (line 31)
- Schedule C-EZ (line 3)
- Schedule K-1 (line 14)
- Schedule K-1 (line 9, code J1)
- Net farm profit or net farm loss from Schedule F (line 36)
- Farm partnerships use Schedule K-1 (Form 1065, box 14, code A)
- Any income received from Conservation Reserve Program (Schedule F, line 6b)
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.
Blank Forms
- 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.
Part 1: Self-Employment Tax
Section A: Short Schedule SE
- Line 1 (Farm income): This line pertains to income from farming. If you’re not a farmer, you can skip this line.
- Lines 2, 3, and 4 (Calculating net earnings): This is where you’ll calculate your net earnings for the tax year. You can calculate your net earnings by taking your total self-employment income for the year, multiplied by 92.35%. Only your self-employment income should be included here.
- Line 5 (Calculating your self-employment tax): Take the figure you got from Line 4 and multiply it by 15.3%. This gives you the total self-employment tax for the year. This only applies if you made less than $128,400. If you made more than $128,400 during the last year, multiply the amount from line 4 by .029%, then add $15,921.60. This gives you the total self-employment tax amount.
- Line 6 (Calculating the amount you will claim): Using the amount you calculated above, multiply Line 5 by 50%. This is the amount you will claim on another tax form, Schedule 1 (Form 1040).
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 1: Self-Employment Tax
- Line 1a: You will calculate your net farm profit or loss (if applicable) by using information from Schedule F, line 34, and farm partnerships, Schedule K-1 (Form 1065), box 14, code A.
- Line 1b: Enter the amount of Conservation Reserve payments you received this year, found on Schedule F, line 4b, or Schedule K-1 (Form 1065) in box 20, code AH.
- Line 2: Here, sole proprietors will calculate the net profit or loss from form Schedule C line 31, and Schedule K-1 (Form 1065), using box 14 and code A.
- Line 3: Simply add the totals from 1a, 1b, and 2.
- Line 4a: If the total on Line 3 is more than 0, multiply it by 92.35%. If it’s zero, enter that here.
- Line 4b: If you use any of the optional methods (you’ll see those further down), just enter the sum of Lines 15 and 17 here.
- Line 4c: Add the amount on Lines 4a and 4b. If it’s less than $400, you don’t need to go any further. You don’t owe taxes on this amount of self-employment income. If it’s less than $400 and you have church employee income, just write 0.
- Line 5a: If you have church employee income listed on a W-2, write it here.
- Line 5b: Multiply the amount on line 5a by 92.35%. If the amount you get is less than $100, just write 0.
- Line 6: Add the amounts on Line 4c and 5b and write it here.
- Line 7: This line shows the maximum amount of your total wages and self-employment earnings that you are required to pay taxes on ($132,900).
- Line 8a: Use your W-2 to record the sum of the amounts of Line 3 and 7 together.
- Line 8b: Write down any tips you haven’t yet reported that are subject to social security tax (from Form 4137, line 10)
- Line 8c: Write down any wages that are subject to social security tax (from Form 8919, line 10)
- Line 8d: Just add the amounts from Lines 8a, 8b, and 8c and write the total.
- Line 9: Take the amount you got on 8d and subtract it from the amount on Line 7. If it’s 0 or less, write 0 here and on Line 10, then move to Line 11.
- Line 10: Looking at Lines 6 and 9, determine which one is less and multiply that amount by 12.4%.
- Line 11: Now, multiply the amount on Line 6 by 2.9%. Write that amount here.
- Line 12: This is where you’ll determine the amount of your self-employment tax. First, add the amounts on Lines 10 and 11. Enter the total here and also write it on Schedule 2 (Form 1040 or 1040-SR), Line 4, or Form 1040-NR, Line 55.
- Line 13: This is where you’ll figure out the amount of self-employment tax you can deduct. Take the amount listed on Line 12 and multiply it by 50% to see what amount you can deduct. You will also enter this amount on Line 14 of Schedule 1 (Form 1040).
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.
