What Is Schedule SE? (+Example)

IRS Schedule SE (Form 1040) is used by freelancers, sole proprietors, and independent contractors to calculate their Social Security and Medicare tax on self-employment income of $400 or more for the year. The form calculates what is similarly withheld on a W-2 as FICA tax for employees.

Example of Completed Schedule SE (Form 1040)

Jeremiah Jones has two jobs and a freelance consulting business. A sample Schedule SE has been prepared for Jones, using the information shown below. In this situation, Jones has total wages in excess of the Social Security wage base and excess FICA withholding on those wages.

Here is what Jones’ Schedule SE for 2023 would look like:

Part I: Self-employment Tax

• Lines 1a and 1b: These lines are specific to farm income, which will be addressed subsequently in Part II.
• Lines 2 through 4c: Take self-employment income from Schedule C (sole proprietorships and single-member LLCs) or K-1 (partners in a partnership or members of a multimember LLC) and multiply it by 92.35%:
• • The 4c amount should be moved to line 6. If you received a W-2 from a church, reference the form instructions and complete lines 5a and 5b as applicable.
• Line 6: Sum the income items from 4c and 5b on these lines.
• Line 7: This field is pre-populated on the form and represents the Social Security wage base.
• Line 8a: This is where you would enter wages up to the amount on line 7. The amount on line 8a should not be greater than line 7:
• • In our example, Jones had total wages of $251,912, but only $160,200 was reported on line 8a.
• Lines 8b through 8c: Enter other W-2 income subject to Social Security tax on these lines.
• Line 8d: Get the sum of lines 8a through 8c.
• Lines 9 and 10: Use the percentage provided on this line to compute the amount of Social Security tax due:
• • In our example, Jones already paid the maximum Social Security tax obligation through his W-2 wages, so no additional Social Security tax is assessed on his self-employment earnings.
• Line 11: Use the percentage provided to compute the amount of Medicare tax due on the self-employment income:
• • In our example, the Medicare tax calculated is not limited by the $3,653 already withheld by Jones’ employer.
• Line 12: Add lines 10 and 11 to calculate total self-employment tax.
• Line 13: Compute the deduction for 50% self-employment tax by multiplying line 11 by 0.50. This deduction is then carried to Form 1040, Schedule 1, line 15.

Interplay Between Self-employment Tax & Wage Income

Every year, the IRS sets a maximum dollar amount upon which Social Security tax can be calculated. When a taxpayer has two separate employers, each one withholds as though it is the only employer, which can lead to excess Social Security withholding:

• ABC Company paid Jones’ wages in excess of the 2023 Social Security wage base of $160,200. Through earnings from that job, the maximum Social Security tax was withheld.
• DEF Company paid Jones another $75,000 and withheld FICA tax accordingly.
• Jones’ consulting company (Jones Consulting) would ordinarily be responsible for the Social Security portion of the self-employment tax. However, since Jones maxed out his Social Security tax obligation through his employment with ABC Company, the only tax calculated on Jones’ Schedule SE is Medicare. The excess Social Security tax withheld is included in “Other Credits & Payments” and carries to Form 1040, line 30.

Part II: Optional Methods to Figure Net Earnings

The amount of tax that an individual pays into the Social Security System impacts the amount of Social Security benefits that can be collected upon retirement. Using an optional method to figure net earnings may increase Social Security tax in the short term—but it may also provide credit toward Social Security coverage in the long term.

The two optional methods shown in Part II of Schedule SE are the Farm Optional and Nonfarm Optional methods.

The election to use either method is made by completing Part II of Schedule SE. Since line 14 represents the maximum income that is set annually by the IRS, the amount shown is pre-populated on the form.

Form 8959: Additional Medicare Tax

Form 8959 is used when both wages and self-employment income are reported in excess of a threshold amount assigned to each filing status . Income from self-employment tax and wages are combined on Form 8959 to determine the amount of additional Medicare tax.

From our scenario above, Jones’ income was high enough for him to be subjected to this additional tax. His Form 8959 would be populated as shown below:

Where to Report & File Schedule SE

• Where to report: The self-employment tax from Schedule SE, line 12, carries to Form 1040, Schedule 2, line 4. The 50% adjustment from Schedule SE, line 13, carries to Form 1040, Schedule 1, line 15.
• Where to file: Form SE should be attached to Form 1040. Both forms should be filed together by the Form 1040 due date.

Frequently Asked Questions (FAQs)

Bottom Line

Schedule SE of Form 1040 is used to calculate and remit self-employment tax for sole proprietors, freelancers, and partners. Self-employment tax is the equivalent of FICA taxes paid by an employer and employee.