If you’re self-employed, you have to pay self-employment tax to the IRS. And to do that, you need to file Schedule SE.
How exactly does the IRS classify “self-employment” income? Who needs to file Schedule SE? And which version of Schedule SE should you file, the long version or the short version?
Here’s what you need to know.
What is Schedule SE?
Individuals use IRS Schedule SE to figure out how much self-employment tax they owe.
Schedule SE is one of many schedules of Form 1040, the form you use to file your individual income tax return. You use it to calculate your total self-employment tax, which you must report on another schedule of Form 1040—Schedule 4 (line 57).
Self-employment tax is a combination of your Social Security and Medicare tax—similar to the taxes withheld from your paycheck when you work for someone else.
In general, self-employed individuals must pay both self-employment tax and income tax.
Further reading: Sole Proprietorship Taxes (A Simple Guide)
Who needs to file Schedule SE?
If you made more than $400 this year in self-employment income, you must report your self-employment income to the IRS using Schedule SE.
What is self-employment income?
Self-employment income is income you earn for yourself. The IRS says you’re “self-employed” if you do business as a sole proprietor, an independent contractor, as a member of a partnership, or if you work for yourself in any other way (including operating a part-time business).
If you’re unsure what any of those terms mean, visit the IRS’s Self Employed Individuals Tax Center for more information.
Where do I find my self-employment income?
Before you file Schedule SE, you must first calculate your total self-employment income (or loss).
When you’re doing your taxes, you’ll calculate your total self-employment income in one of four places:
Schedule C (line 31)
If you run a sole proprietorship or performed work as an independent contractor, you’ll use Schedule C to calculate your total self-employment income (or loss). On Schedule C, total self-employment income is recorded on line 31.
Schedule K-1 (line 15a)
If you’re a member of a partnership, you’ll use Schedule K-1 of Form 1065 to determine your share of the partnership’s income or loss and record it on line 15a. In general, this income is subject to self-employment tax.
Schedule F (line 15a)
Farmers use Schedule F of Form 1040 to calculate total farming income (or losses), which is recorded on line 36.
Form 1040 (line 21)
If you report any miscellaneous self-employment income on your personal tax return, you’ll record it on line 21 of Form 1040.
What does Schedule SE look like?
Schedule SE is a two-page form from the IRS, the first page of which looks like this:
If you look closer, you’ll notice that Schedule SE is actually two forms: Short Schedule SE and Long Schedule SE.
Which version of Schedule SE should I fill out?
Generally speaking, if the only income you made this year was self-employment income, you should use Short Schedule SE.
If you made self-employment income but also worked for someone else, you should use Long Schedule SE.
Why? It all goes back to the fact that self-employment tax is a combination of your Social Security and Medicare tax.
If you file the short version of Schedule SE while earning both regular employment and self-employment income, you risk paying more Social Security tax than you need to, because some Social Security tax has already been withheld from your income. Long Schedule SE makes sure that doesn’t happen.
How to fill out Short Schedule SE
Located on page one of Schedule SE, the short version of Schedule SE is just six lines long.
Lines 2-4 will ask you to take your total net self-employment income and multiply it by 92.35% to calculate your “net earnings,” which is the part of your income that is subject to self-employment tax.
Line 1 is a special line about farming income that you don’t have to worry about unless you’re a farmer.
Line 5 will ask you to multiply line 4 by 15.3% to get your total self-employment tax for the year, if you made less than $128,400 in 2018.
If you made more than $128,400, multiply line 4 by 0.029 and add $15,921.60 to the result to get your total self-employment tax.
Line 6 will prompt you to multiply whatever your self-employment tax is by 50%. You can claim the resulting amount on line 27 of yet another schedule of Form 1040—Schedule 1.
How to fill out Long Schedule SE
Long Schedule SE, located on page 2 of Schedule SE, is comprised of two parts:
Part I: "Self-employment tax"
This is like a slightly more complicated version of Short Schedule SE that also incorporates your employment income into the calculation (which you don’t pay self-employment tax on).
To avoid paying more Social Security tax than you need to, make sure to add the total amounts from line 3 (Social security wages) and line 7 (Social security tips) from your W-2 on line 8a of Long Schedule SE.
Line 13 will also prompt you to multiply whatever your self-employment tax is by 50%— you can deduct the resulting amount on line 27 of Schedule 1 (Form 1040).
Part II: "Optional methods to figure net earnings"
You can use this section to elect what the IRS calls one of the “optional methods,” which might give you credit toward your social security coverage even if your income from self-employment was very small (less than $5,280) or a loss. But be careful, this could also increase your self-employment tax. Before electing one of the optional methods, make sure to talk to a tax professional.
Can I deduct self-employment tax? And if so, how much?
You can deduct 50% of self-employment tax, because the IRS considers the employer portion of the self-employment tax to be a deductible expense.
Regardless of whether you’re itemizing your deductions or taking the standard deduction, you can claim the deductions you calculated above (on line 6 of Short Schedule SE or Line 13 of Long Schedule SE) on line 27 of Form 1040.
What if I run multiple businesses?
If you have more than one source of self-employment income, combine the income (or losses) from all sources and complete only one Schedule SE.
What if I’m also an employee and get a regular salary?
If you made self-employment income but also worked for someone else, you need to remember two things:
To make sure you don’t pay more self-employment tax than you need to, use Long Schedule SE.
When filling out Long Schedule SE, make sure to add the total amounts from line 3 (Social security wages) and line 7 (Social security tips) from your W-2 on line 8a of Long Schedule SE.
Filling out Schedule SE: an example
Let’s say you’re the sole proprietor of a small design agency and you’re doing your taxes for 2018.
After filling out Schedule C of Form 1040, line 31 of Schedule C shows you made a net profit of $47,887.00 in 2018.
Because you didn’t work for anyone else in 2018, you fill out Short Schedule SE.
Line 1 you leave blank because you didn’t earn any farm income in 2018. (At least, not that you’re aware of!)
Line 2: enter $47,887.00, the net profit you calculated on line 31 of Schedule C.
Line 3: enter the same amount as line 2, because you didn’t earn any farming income.
Line 4: multiply $47,887 by 0.9235 to get your net earnings: $44,223.64.
Line 5: multiply the amount from line 4, $44,223.64, by 0.153 to calculate your total self-employment tax for 2018: $6,766.22.
Line 6: finally, multiply line 5 by 50% to get your total self-employment deduction: $3,383.11.
A free self-employment tax calculator
If you need help totaling your tax liability, walk through our free self-employment tax calculator. Enter your info, and we’ll tell you what you owe.