Answer:
What is Schedule SE?
Schedule SE calculates the amount of self-employment taxes owed by a business owner, based on the profit (loss) of the owner's business. Self-employment taxes are paid for Social Security and Medicare benefits. All business owners who are self-employed (not employees of a corporation) and who have $400 or more in business income for a year must pay self-employment tax.
If your total self-employed income is less than $400, you don't owe any self-employment tax.
Since self-employment taxes are based on the profits of your business, if your business does not have a profit for the year, no self-employment taxes are due.
If you have income from more than one business, the net income of all businesses is added together to determine self-employment tax on Schedule C. If one business has a net loss, that loss can be used to offset net profits from another business or businesses.
Who is considered self-employed for self-employment tax purposes?
Self employed business owners include sole proprietors and single-member limited liability company (LLC)) and for partners on their share of partnership income. Members in multiple-member LLCs are considered as partners for federal income tax purposes.
Self-employment Tax Rates
- The self-employment tax rate is 15.3% on self-employment income.
- The Social Security portion of self-employment taxes is limited. At the point where your total personal income (including self-employment and other employment) exceeds the Social Security maximum for the year, no additional Social Security tax is due. The calculation on Schedule SE takes into account this maximum. The Medicare portion of self-employment tax is not subject to a maximum.
- If your total personal income, including self-employment and other employment, exceeds a specific amount, you must pay an additional Medicare tax, at the rate of 0.9%. This calculation is made on your personal tax return.
Calculating Self-employment Tax on Schedule SE
To calculate self-employment tax, you must first determine the net income from your business (or all businesses you own added together. Net profit from a business is calculated on Schedule C. Then, the process of completing Schedule SE for self-employment taxes is done in two parts:
- First, a calculation to determine the amount of the deduction for self-employment tax, to be entered in Line 27 of Form 1040. This deduction is entered on page one of your tax return, so it reduces your adjusted gross income (your net taxable income before deductions).
- Second, the amount of self-employment tax is calculated. The total net profit from all businesses is considered, but only the first $106,800 is taxable for Social Security purposes.
Read a more detailed description of how to calculate self-employment taxes on Schedule SE.
How Do I File Schedule SE?
The Schedule SE calculation is entered on IRS Form 1040 in two places:
- Line 27, which reduces Adjusted Gross Income by half of the Self-employment tax amount
- Line 57, to include the total self-employment tax owed, in addition to personal income taxes.
The amount on Line 57 is added to your personal income tax calculation to show your total federal tax liability the year.
Schedule SE and Estimated Taxes
If you pay estimated taxes on your self-employment income, you may also include estimated self-employment taxes with your estimated income taxes. Read more about estimated taxes.
Here is a copy of Schedule SE for 2014 (PDF) and the instructions for Schedule SE for 2014 (PDF).