Why Schedule SE exists

Employees split FICA payroll taxes evenly with their employer (7.65% each). Self-employed people pay both halves themselves through self-employment (SE) tax: 12.4% Social Security up to the annual wage base and 2.9% Medicare with no cap, for a combined 15.3%. An additional 0.9% Medicare surtax applies above income thresholds. Schedule SE is the form that does the math.

Who must file

You must file Schedule SE if your net earnings from self-employment were $400 or more during the year, or if you had church employee income of $108.28 or more. Net earnings from self-employment generally equal your Schedule C net profit (or your share of partnership self-employment income from Schedule K-1) multiplied by 92.35%, an adjustment that mirrors the employer-side FICA deduction available to wage earners.

How the calculation works

Part I starts with net earnings, applies the 92.35% factor, then computes 12.4% Social Security tax on the smaller of those earnings or the annual Social Security wage base less any W-2 wages you also earned. Medicare tax of 2.9% applies to the full 92.35% figure with no cap. Half of the resulting SE tax is deductible on Schedule 1 as an adjustment to income — this restores parity with employees, who do not pay income tax on the employer share of payroll taxes.

Optional methods

Part II offers two optional methods (farm and nonfarm) that can let low-income or loss-year filers elect into a higher SE tax base in order to keep earning Social Security credits or claim certain refundable credits. Most filers will not need the optional methods, but they can be valuable in a year when actual earnings would otherwise leave you short of the four quarters of credit Social Security uses to compute future benefits.

Coordination with retirement contributions

Self-employed retirement deductions (SEP-IRA, solo 401(k), SIMPLE) reduce income tax but generally do not reduce SE tax, because the deduction is taken on Schedule 1, not on Schedule C. Plan accordingly when modeling the after-tax cost of a retirement contribution.