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Schedule SE & 1040 Year-End Self-Employment Tax

Last Updated:
December 8, 2017

This article pertains to year-end taxes if you are self-employed or an independent contractor and the forms you may need in order to calculate what you owe and file with the IRS in April. At the end of the year, you’ll need to fill out three forms: the Schedule C, the Schedule SE and the 1040.

What is self-employment tax and the Schedule SE?

For traditional W-2 employees, the company they work for will withhold a portion of each paycheck (7.5%) and also contribute the same amount to what’s called FICA tax (Federal Income Contributions Act). This portion of a traditional paycheck goes towards Social Security and Medicare. On the other hand, anyone self-employed or who earns contracting income, needs to do all the withholding. Those who are self-employed or earning contracting income will pay 15.3% of earnings in what’s known as SECA taxes (Self-Employment Contributions Act).

Self-employment tax due can be determined by inputting profits and losses on the Schedule SE.

How to fill out the Schedule SE

Can you use the short Schedule SE?

The IRS has put together a flowchart to help you determine if you can fill out the shorter Schedule SE (the key questions involve whether you’ve earned more than $118,500, received unreported tips, etc.):

Schedule SE Flow Chart

After determining whether to use the longer version or the shorter version, all sources of 1099 income are combined. 

Line-by-Line of the Short Schedule SE

1a - Net farm profit: This applies to farmers where they note their total profit or loss

1b - Social Security, Retirement, or Disability: Input here the amount received from any of these programs.

2 - Net profit (or loss) from the Schedule C: Input the profit or losses from Schedule C’s.

3 - Combine the lines above

4 - Multiply the line above (3) by 92.35% (.9235). If this amount is less than $400, no self-employment tax is due. Put the total amount after multiplying here.

5 - Self-employment tax. If the amount on line 4 is:

  • $118,500 or less, multiply line 4 by 15.3% (.153). Enter the result here and on Form 1040, line 57, or Form 1040NR, line 55
  • More than $118,500, multiply line 4 by 2.9% (.029). Then, add $14,694 to the result. Enter the total here and on Form 1040, line 57, or Form 1040NR, line 55

6. Deduction for one-half of self-employment tax. Multiply line 5 by 50% (.50). Enter the result here and on Form 1040, line 27, or Form 1040NR, line 27. One half of the self-employment tax amount from taxable income that’s subject to income tax can be deducted here. This allowance makes sure self-employed and contract workers pay a lower amount on overall income tax because of the self-employment tax they pay.

Plugging Schedule SE Information into 1040

The amount calculated on the Schedule SE needs to be plugged into the corresponding lines on the 1040 form.  

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