How To Compute Self-Employment Tax: Schedule SE

Ines Zemelman, EA

• 15.03.22 • 5 min read

How To Compute Self-Employment Tax: Schedule SE

Self-employment tax is social security and medicare taxes. Self-employed individuals use the Schedule SE to compute their SE Taxes. In this article, you will find out about SE Tax and Schedule SE. You will also learn how to fill out self-employment tax Schedule SE.

What Is SE Tax?

SE Tax is a combination of social security and medicare tax for individuals who work for themselves. Self-employed people are liable to report and pay self-employment tax and income tax. The total tax rate for calculating SE Tax is 15.3%. Out of which, 12.4% is for social security and 2.9% is for Medicare.

If you are self-employed you will have to pay the full 15.3% SE Tax on your self-employment income. On the contrary, if you are employed half of this tax will be withheld from your paycheck and your employer will contribute the remaining half.

What Is Schedule SE Tax Form?

Taxpayers who are either independent contractors, sole proprietors, or have a share in a partnership are considered self-employed individuals.

Schedule SE is a part of Form 1040 which is an individual income tax return for reporting self-employment income. Before filing Schedule SE you need to compute your self-employment income. The following table contains the schedule and Line you will be looking for to get your earnings from self-employment.

Sources of Income	Schedule	Line
Solepropertership/Independent contractor	Schedule C Profit or loss from business	31
Partnership	Schedule K-1 Partner’s share of Income	14
Farmers	Schedule F Profit or Loss from farming	34

How To Fill Out The Schedule SE Tax Form?

According to the IRS, you must pay self-employment tax and file Schedule SE if your self-employment income is equal to or more than $400 excluding church income. You also owe SE tax if your church employee income is equal to or more than $108.28.

Here is what the self-employment tax Schedule SE Tax Form looks like.

Schedule SE consists of two parts Part I and Part II and within those two parts, a distinction between farm income and nonfarm income is made.

Unless you are a farmer the farm income part is not relevant to you. We are now going to talk about the lines within Part I that are relevant to non-farm income.

Part I: Self-Employment Tax

For most of the taxpayers, Part I will be relevant.

Computing Net Earnings:
Insert information in fields 2-4c to calculate your net earnings. You will pay SE Tax on 92.35% of your income.

Net earnings= Self employment income * 92.35%

Fill in line 6 with the total amount you get in line 4c after adding up 4a and b unless you work in Church and have received the W2 Form.
Maximum Tax Payable On Social Security Tax:

Line 7 tells you the maximum amount of the combined wages and self-employment income subject to social security tax. This maximum limit is $142,800. The social security tax rate which is 12.4% for the year 2021 applies to the first $142,000 of your earnings.

There are no such limits prescribed for medicare taxes so you will pay 2.9% of medicare taxes on all your earnings.
Social Security Taxes On W2-Form: If you are already employed your employer will withhold social security tax from your paycheck and remit it directly to the IRS. At the end of the tax year, you will receive a W-2 form containing the information regarding how much taxes have already been withheld from your salary and wages. In Lines 8a-d you will report the earnings from which your social security taxes have been withheld.
Social Security Tax Liability: How much social security tax you owe will be calculated using Lines 9-10.
Medicare Tax Liability: How much medicare tax you owe will be calculated using Line 11.
Total Self-Employment Taxes: The figures entered in lines 10 and 11 will be added up and the total amount is entered in Line 12. This is the total self-employment tax amount you owe to the IRS.
Deduction For One-Half Of Self Employment Tax: Line 13 will compute one-half of the SE Tax. While figuring your adjusted gross income you can write off one-half of the self-employment tax. Self employment deduction claim= Total self employment tax(Line 12) * 50%

Part II: Optional Methods To Figure Net Earnings

Part II gives you the optional methods to figure out your net earnings. However, there are conditions you should meet before opting for these optional methods. These conditions vary depending on whether your earning source is farm or non-farm.

Conditions For Farm Income: You may use this method only if either your gross farm income is not more than $8,820 or your net farm earnings are less than $6,367.
Conditions for Non-Farm Income: You may use this method only if your net nonfarm income is less than $6,367 and also less than 72.189% of your gross nonfarm income. Additionally, your self-employment net earnings must have been at least $400 in 2 of the past 3 years. Furthermore, the IRS restricts the use of this method so you can only use this option up to 5 times.

A piece of advice from a tax specialist will be helpful in deciding whether or not you should opt for the optional methods. Seek consultation from a tax professional to make sure that you have accurately calculated the taxes on self-employment tax Schedule SE.