If you worked for yourself in 2017—whether as a freelancer, independent contractor, small business owner, or sole proprietor—you likely needed to file Schedule SE along with your Form 1040. This form calculates the Social Security and Medicare taxes you owe on your self-employment income, which replaces the payroll taxes that employers normally withhold from employee paychecks. Here's everything you need to know about this essential tax form.

What the Form Is For

Schedule SE (Self-Employment) calculates the self-employment tax you owe to fund Social Security and Medicare. When you work for an employer, they withhold 7.65% from your paycheck and contribute a matching 7.65% on your behalf—totaling 15.3% toward these programs. As a self-employed person, you're responsible for paying both the employee and employer portions yourself.

The Social Security Administration uses the information from your Schedule SE to determine your future retirement, disability, and survivor benefits. This means filing Schedule SE isn't just about paying taxes—it's also building your safety net for the future. The tax applies regardless of your age, even if you're already receiving Social Security or Medicare benefits.

For 2017, the self-employment tax rate was 15.3%, broken down into 12.4% for Social Security and 2.9% for Medicare. However, only the first $127,200 of your net self-employment earnings was subject to the Social Security portion; all earnings were subject to the Medicare portion.

When You'd Use It (Including Late or Amended Filing)

Regular Filing: You must file Schedule SE with your 2017 Form 1040 if you had net earnings from self-employment of $400 or more, or if you received church employee income of $108.28 or more. The standard deadline was April 17, 2018 (extended from April 15 due to a weekend and Washington D.C. holiday).

Late Filing: If you missed the original deadline and haven't filed yet, you should file as soon as possible. The IRS imposes a failure-to-file penalty of 5% of unpaid taxes for each month your return is late (up to 25% maximum). If you owe self-employment tax, interest also accumulates on the unpaid amount. The good news: if you're owed a refund, there's no penalty for late filing, though you risk losing your refund if you wait more than three years.

Amended Returns: If you already filed your 2017 return but made an error on Schedule SE—perhaps you forgot to include all your self-employment income or miscalculated your net earnings—you can file an amended return using Form 1040X. You have three years from the date you filed your original return (or two years from when you paid the tax, whichever is later) to claim a refund. The IRS typically processes amended returns within 16 weeks, though complex cases may take longer.

Key Rules and Thresholds for 2017

Income Threshold: The $400 minimum is critical. If your net self-employment earnings totaled $400 or more during 2017, you must file Schedule SE. This threshold is remarkably low—designed to ensure that even small amounts of self-employment activity contribute to your Social Security coverage.

Maximum Taxable Earnings: For 2017, only the first $127,200 of combined wages and self-employment income was subject to the 12.4% Social Security tax. Any earnings above this amount were still subject to the 2.9% Medicare tax. If you had both W-2 wages and self-employment income, your wages counted first toward the cap.

Net Earnings Calculation: Schedule SE uses 92.35% of your net profit from self-employment (not your gross income). This percentage accounts for the employer portion of the tax and puts self-employed individuals on equal footing with traditional employees.

Optional Methods: The IRS offers farm and nonfarm optional methods for calculating net earnings. These can help you in years when you had low income or a loss, allowing you to still earn Social Security credits or qualify for certain tax credits like the Earned Income Credit. The nonfarm optional method has a lifetime limit of five years and requires that you were ""regularly self-employed"" (having net earnings of at least $400 in two of the prior three years).

Special Situations: Ministers, members of religious orders, and certain other religious workers have unique rules. Some may be exempt if they filed and received approval for Form 4361. Nonresident aliens living in the U.S. must pay self-employment tax if international social security agreements determine they're covered under the U.S. system.

Step-by-Step: How to Complete Schedule SE (High Level)

Step 1: Determine Which Version to Use

Schedule SE has two sections: Short Schedule SE (Section A, front page) and Long Schedule SE (Section B, back page). Use the flowchart on the form to determine which applies. Most people can use the short version unless they received wages exceeding $127,200, had church employee income, received unreported tips, used optional methods, or have certain religious exemptions.

Step 2: Report Your Self-Employment Income

Enter your net farm profit from Schedule F (line 1a) and net profit from business activities from Schedule C or C-EZ (line 2). If you received Conservation Reserve Program payments while collecting Social Security retirement or disability benefits, enter those on line 1b.

Step 3: Calculate Net Earnings

Combine your income sources (line 3), then multiply by 92.35% (line 4). This adjustment reflects the reality that employees don't pay Social Security and Medicare taxes on the employer's contribution portion.

Step 4: Calculate Your Tax

If line 4 is $127,200 or less, multiply by 15.3% to get your total self-employment tax. If it's more than $127,200, the calculation is more complex: multiply the full amount by 2.9% (Medicare only), then add $15,772.80 (which represents the maximum Social Security tax: $127,200 × 12.4%).

Step 5: Calculate Your Deduction

Multiply your self-employment tax (line 5) by 50% to determine your deduction for one-half of self-employment tax (line 6). This deduction helps offset the fact that you're paying both the employee and employer portions. You'll enter this deduction on Form 1040, line 27, reducing your adjusted gross income.

Step 6: Transfer Amounts to Form 1040

Enter your total self-employment tax on Form 1040, line 57, and your deduction on Form 1040, line 27. Attach Schedule SE to your complete tax return.

Common Mistakes and How to Avoid Them

Mistake #1: Forgetting to File

Many new freelancers or gig workers don't realize that self-employment income requires Schedule SE if they earn $400 or more. Even if you don't owe income tax, you might still owe self-employment tax. Solution: Review all your 1099-NEC, 1099-MISC, and 1099-K forms, and calculate your total net profit. If it's $400 or more, file Schedule SE.

Mistake #2: Using Gross Income Instead of Net Profit

Your self-employment tax is based on net earnings (income minus expenses), not gross receipts. Solution: First complete Schedule C or C-EZ to determine your net profit from business expenses, then transfer that number to Schedule SE.

Mistake #3: Incorrectly Calculating the 92.35% Figure

Some taxpayers multiply the wrong amount or use the wrong percentage. Solution: Use line 3's combined total (not individual line items) and multiply by exactly 0.9235.

Mistake #4: Missing the 50% Deduction

Many people correctly calculate their self-employment tax but forget to claim the deduction for one-half of that tax on Form 1040, line 27. This deduction can save hundreds or thousands of dollars. Solution: Always complete line 6 of Schedule SE and transfer that amount to your Form 1040.

Mistake #5: Combining Spouse's Income Incorrectly

If both spouses have self-employment income, each needs a separate Schedule SE. Some couples mistakenly combine their earnings on one form. Solution: File two separate Schedule SE forms if both spouses are self-employed, though they can use the front and back of the same form if one qualifies for the short version and the other needs the long version.

Mistake #6: Not Considering Optional Methods

If you had low income or a loss, you might benefit from using the farm or nonfarm optional method to gain Social Security credits or qualify for refundable tax credits. Solution: Review Part II of Long Schedule SE to see if optional methods would benefit your situation.

What Happens After You File

IRS Processing

Once you file your Form 1040 with Schedule SE attached, the IRS processes your return and records your self-employment earnings with the Social Security Administration. This typically takes 6-8 weeks for paper returns or 3 weeks for electronically filed returns.

Social Security Credits

The earnings you report on Schedule SE count toward the 40 credits (typically 10 years of work) you need to qualify for Social Security retirement benefits. In 2017, you earned one credit for each $1,300 in covered earnings, up to four credits per year. Your future benefit amount is calculated based on your highest 35 years of earnings.

Payment of Tax

The self-employment tax you calculated becomes part of your total tax liability on Form 1040. If you had enough withholding from other sources or made sufficient estimated tax payments, you might not owe additional money. Otherwise, you'll need to pay the balance due. For future years, self-employed individuals typically need to make quarterly estimated tax payments to avoid penalties.

Estimated Taxes for Next Year

Your 2017 self-employment tax obligation helps determine your required estimated tax payments for 2018. Generally, you should pay quarterly estimated taxes if you expect to owe $1,000 or more in taxes (including self-employment tax) when you file your return.

Potential Additional Medicare Tax

If your combined income exceeded certain thresholds ($200,000 for single filers, $250,000 for married filing jointly), you might owe an additional 0.9% Medicare tax. This would be calculated on Form 8959, though it wasn't the primary focus of Schedule SE for most filers.

FAQs

Q1: I only made $500 from freelancing in 2017. Do I really need to file Schedule SE?

Yes. Any net self-employment earnings of $400 or more requires filing Schedule SE. While $500 might seem small, it contributes to your Social Security coverage and helps you accumulate credits toward future benefits.

Q2: Can I deduct my self-employment tax?

You can deduct one-half (50%) of your self-employment tax when calculating your adjusted gross income on Form 1040, line 27. However, you cannot deduct the full amount, and this deduction doesn't reduce your self-employment tax itself—it only reduces your income tax.

Q3: What if I had both W-2 wages and self-employment income in 2017?

You still need to file Schedule SE for your self-employment income. Your W-2 wages count first toward the $127,200 Social Security wage base. If your wages exceeded this amount, you'd only owe the 2.9% Medicare portion on your self-employment income. Use Long Schedule SE (Section B) to properly account for your wages.

Q4: I lost money in my business. Do I still file Schedule SE?

If your business had a net loss, you generally don't owe self-employment tax on that activity. However, you might still want to file Schedule SE if you're using an optional method or if you had other self-employment income. A loss on Schedule C or F typically means line 3 of Schedule SE will be zero or negative, resulting in no self-employment tax.

Q5: How is self-employment tax different from income tax?

Self-employment tax and income tax are separate calculations. Self-employment tax (15.3% on net earnings) specifically funds Social Security and Medicare. Income tax (based on tax brackets ranging from 10% to 39.6% in 2017) funds general government operations. You might owe one, both, or neither, depending on your total income and deductions.

Q6: I'm retired and already receiving Social Security. Why do I still have to pay self-employment tax?

Self-employment tax applies to everyone with self-employment income, regardless of age or whether they're receiving benefits. However, if you're receiving Social Security retirement benefits and also receiving Conservation Reserve Program payments, those CRP payments can be reported on line 1b and may receive more favorable treatment.

Q7: What's the deadline for filing an amended Schedule SE, and can I get a refund?

You have three years from the date you filed your original 2017 return (or by April 17, 2021, if you filed on time) or two years from when you paid the tax, whichever is later, to file Form 1040X and claim a refund. If you overpaid self-employment tax or made an error that resulted in paying too much, you can potentially get that money back by filing an amended return before the deadline expires.

For More Information

Visit IRS.gov/ScheduleSE for the latest updates and resources. You can also consult IRS Publication 334 (Tax Guide for Small Business) and Publication 225 (Farmer's Tax Guide) for additional guidance on self-employment tax issues.

Sources: IRS 2017 Instructions for Schedule SE (Form 1040), 2017 Schedule SE (Form 1040)