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Schedule SE Social Security Self-Employment Tax Go to topics
Sole proprietors do not contribute to the social security and Medicare system through payroll deductions. Instead, they pay these taxes with their federal income tax. Even though this is an annual form, we are discussing it now because it must be calculated and paid quarterly with IRS 1040ES.
 
You don't have to make quarterly payments on social security or Medicare if your net self-employment income was less than $400.
 
Forms to use  Schedule SE Social Security Self-Employment Tax
 
How often  Quarterly deposit with IRS 1040ES.
Annual reporting requirement. Include Schedule SE with your 1040 personal return.
 
Tax rate  There are two parts to this tax:
Social security12.4% (.124) of the first $118,500 of net income from your sole proprietorship
Medicare2.9% (.029) of ALL net income
Total15.3%

If you are used to only 7.65% payroll deductions, self-employment taxes seem high. However, employers have to match employee deductions. Therefore the REAL cost for regular employees is the same as what self-employed people pay.

Earn more than $200,000? There is a .9% Additional Medicare Tax on wages above $200,000 ($250,000 if married filing jointly). Click here for details.
 
More info  Please note:
  • The $118,500 limit is per person. You cannot use your spouse' payroll deductions to offset your social security self-employment tax.
  • Social security self-employment tax is NOT charged on non-business income (interest or dividends from your personal investments)
  • Social security self-employment tax is NOT charged on rental or royalty income.
 
Recalculate quarterly  Because your first year's income will be sporadic, you should re-calculate your social security self-employment tax each quarter.
 
Another job?
Use Long Sch SE
  If you also earned regular wages (or tips) that were reported on a W-2 form, AND the total wages plus your business' net income exceeded $118,500, you must complete Part I of the Long Schedule SE so that you do not pay too much social security tax. This is because social security taxes are only paid on the first $118,500 of your salary plus business net income.

Medicare is paid on all net business income, regardless of your salary from another job.

 
How to complete Sch. SE 
Line  What to enter
1Leave blank (for farms only)
2Calculate your business' net income. Do NOT include these items as expenses:
  • Any money that you took from the business as a draw or as "salary"
  • Social security self-employment tax
  • Health insurance premiums
  • Tax deferrals, such as contributions to pensions, profit sharing, etc.
  • Personal tax exemptions or standard exemptions
  • Carryover losses, gains, etc.
  • If you are completing this form to determine your estimated quarterly taxes, include an estimate of your business net income for the remainder of the year.
  • Add your spouse's income and any other sources of income.
3Same as line 2
4Multiply line 3 by .9235. This adjustment is made because ½ of social security is tax deductible.
5 Multiply line 4 by .153 (.153= .124 social security + .029 Medicare). If line 4 is more than $118,500 (the cut-off for this year), calculate (118,500 x .129) + line 4 x .029.

If you are completing this to determine quarterly taxes: Enter your results on IRS 1040ES, line 11.

If you are completing final year-end tax returns: Enter your results (line 5) on IRS Form 1040 line 57 and ½ of the amount from line 5 on Form 1040, line 30.

 
Net income under $1,600? Long Sch. SE   If your net income was less than $1,600 and also less than 2/3 of your gross income, there is an alternative method of calculating social security self-employment tax. It will probably increase your taxes, but it will also increase the social security benefits you are entitled to. The worksheet is on the back of the Schedule SE (Part II).
 
Other employees?  Social security taxes for employees (i.e. non-owners) must be paid using different forms. See IRS 941, EFTPS payment for federal employment taxes and your state quarterly employer forms.
 
New tax rate  The social security self-employment tax maximum wage limit changes annually.
 
To pay  Social security self-employment tax should be paid quarterly with 1040ES. Schedule SE should be completed annually and mailed with each taxpayer's 1040 annual return.
 
Questions?  Call the IRS information hotline (800) 829-4933. For forms, call (800) 829-3676 or obtain them online at http://apps.irs.gov/app/picklist/list/formsPublications.html.
 
 
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