Tax Prep & Planning

What is a Schedule SE?

Many traditional W-2 employees don’t even realize what payroll tax is. Read on to learn more about what they have to learn about the IRS Schedule SE if they start a business.

Payroll tax refers to the Social Security and Medicare tax on employee’s wages and salaries. One-half of these taxes are taken out of employees’ paychecks and the other half is paid by the employer.   

But, if you’re self-employed, you are required to pay both the “employee” and “employer” portions of Social Security and Medicare taxes. This is referred to as self-employment (SE) tax.

Up to $132,900 of your net earnings from self-employment income is taxed at 15.3% (with 12.4% for Social Security and 2.9% for Medicare). Net earnings over that amount are taxed at 2.9%. Your maximum Social Security contribution for 2019 is thus $16,479.60 ($132,900 × 12.4%). There is no limit on the amount of income subject to the Medicare portion of SE tax.

What is a Schedule SE Used For?

Use Schedule SE to figure out your SE tax. It is filed with Form 1040. The good news is that your adjusted gross income is reduced by one-half of your SE tax.

Who Files a Schedules SE?

If you worked as a contractor either part- or full time, you will likely be responsible for SE tax. In fact, every self-employed person with net earnings of at least $400 needs to include a Schedule SE with their Form 1040.

Self-employed persons for SE tax purposes may fall within these categories:

  • Sole proprietors
  • Contractors receiving non-employee compensation
  • Single-member LLC owners
  • Individuals who file business taxes on a Schedule C
  • Partners who actively provide services to partnerships (including multiple-member LLCs who file a partnership return)

If you are a religious leader, you may also need to file a Schedule SE. This is the case if you have a clergy income of more than $108.28.

How is a Schedule SE Used?

The Social Security Administration (SSA) uses the information received from the IRS about your SE taxes along with your payroll taxes to determine your Social Security benefits. You have to pay SE tax on your net self-employment earnings no matter your age or if you are already getting the benefits.

Schedule SE Basics

Schedule SE has two different methods—“short” and “long” —for calculating SE tax. Here are some of the basics for the “short” method:

Line 2. Enter your net profit from your Schedule C business or self-employment earnings reported to you on Schedule K-1.

Line 4. Multiply this number by 92.35%.

Line 5. Calculate the self-employment tax.

  • If the amount on line 4 is equal to or less than $132,900 (for 2019), multiply the number by 15.3%.
  • If the amount in line 4 is more than $132,900, multiply the number by 2.9% and add $16,479.60 to the result.

Line 6. Calculate the deduction for one-half of SE tax. Multiply the tax on Line 5 by 50%.

Taxpayers with more complicated situations, such as taxpayers who have both self-employment income and wages, must go through the “long” calculation.

Where Do You Enter the Schedule SE Calculation on Form 1040?

You’ll enter the Schedule SE data as follows:

1 –  SE tax is reported on Schedule 2 (Additional Taxes) line 4.

2 – The deduction for one-half of SE tax is reported on Schedule 1 (Additional Income and Adjustments to Income), line 14.

Get Help With Self-Employed Taxes

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