What IRS Schedule SE (Form 1040) (2021) Is For
The IRS Schedule SE (Form 1040) (2021) is used by self-employed individuals, such as sole proprietors, independent contractors, and small business owners, to calculate and pay self-employment tax. This tax covers both Social Security and Medicare taxes, ensuring that self-employed individuals contribute at the same rate as traditional employees.
The form determines how much a self-employed person owes based on net earnings from self-employment and helps the IRS track Social Security coverage and Medicare benefits for retirement and disability purposes.
When You’d Use IRS Schedule SE (Form 1040) (2021)
You would file Schedule SE when your self-employment income meets certain thresholds or filing criteria:
- Self-employment income of $400 or more: Any self-employed individual with net self-employment income of $400 or more must file to report earnings and pay self-employment taxes.
- Church employee income of $108.28 or more: Individuals receiving church employee income above this amount must include it on their Schedule SE.
- Independent contractors and sole proprietors: Those reporting business expenses and net profit on Schedule C as part of their individual income tax return must include Schedule SE to calculate self-employment tax.
- Amended or late returns: Use the form to correct or add missing self-employment income from a prior tax year.
- Quarterly estimated taxes: If you expect to owe at least $1,000 in tax liability, you must make estimated tax payments to the IRS.
Learn more about how to handle unfiled federal tax returns if you missed a prior filing deadline.
Key Rules or Details for 2021 Tax Year
Understanding the rules for the 2021 tax year ensures accurate filing of IRS Schedule SE (Form 1040) (2021).
- Filing thresholds: You are required to file Schedule SE if your net self-employment income is $400 or more, or if your church employee income totals at least $108.28 for the year.
- Social Security wage base: For the 2021 tax year, only the first $142,800 of combined wage and self-employment income was subject to the 12.4 percent Social Security tax.
- Self-employment tax rate: The total self-employment tax rate for 2021 was 15.3 percent, which included 12.4 percent for Social Security and 2.9 percent for Medicare.
- 92.35% rule: Self-employed individuals must calculate their self-employment tax on 92.35 percent of their net earnings to reflect the employer portion of Social Security and Medicare taxes.
- Additional Medicare Tax: A 0.9 percent surtax applies to high-income earners whose wages or self-employment income exceed $200,000 for single filers or $250,000 for joint filers.
- Optional methods: Farmers and small business owners may use the optional methods to maintain their Social Security coverage or to qualify for certain tax credits, depending on eligibility.
Step-by-Step (High Level)
Filing IRS Schedule SE (Form 1040) (2021) follows a series of logical steps to ensure you calculate your self-employment tax accurately.
- Gather income information: Collect Schedule C, Schedule F, or Schedule K-1 showing your net profit or net self-employment income for the year.
- Determine which part to use: Use the Short Schedule SE if you have only self-employment income, or the Long Schedule SE if you also earned wages subject to Social Security tax, owe Additional Medicare Tax, or are using optional methods.
- Calculate net earnings from self-employment: Add all profits and losses, multiply the total by 92.35%, and enter the result as your net earnings from self-employment.
- Compute your self-employment tax: Multiply the result by 15.3% (12.4% for Social Security and 2.9% for Medicare) to determine your total self-employment tax.
- Report on your tax return: Transfer the self-employment tax to Schedule 2 (Form 1040) and claim half as a deductible expense on Schedule 1 to lower your adjusted gross income.
If you need help with any IRS tax forms, our IRS Form Help Center provides step-by-step support.
Common Mistakes and How to Avoid Them
Avoiding common errors when filing IRS Schedule SE (Form 1040) (2021) helps ensure that your self-employment tax is calculated and reported correctly.
- Not filing when required: Many taxpayers overlook the filing requirement, assuming their income is too small to warrant filing. You must file if your net self-employment income is $400 or more, even if your total gross income is low.
- Forgetting the 92.35% adjustment: Some filers mistakenly calculate self-employment tax on their full profit. Always multiply your net earnings by 92.35% before applying the self-employment tax rate.
- Double-counting Social Security income: If you have both W-2 wages and self-employment income, you must use the Long Schedule SE to avoid paying Social Security tax twice on income above the wage base.
- Claiming deductions on the wrong form: Half of your self-employment tax is deductible, but the deduction goes on Schedule 1, not on Schedule SE.
- Omitting partnership or LLC income: Partners and members of multi-member LLCs must include their distributive share from Schedule K-1 when calculating earnings from self-employment.
- Ignoring optional methods: Optional methods may help maintain Social Security coverage or qualify for tax credits, but they can also increase your total self-employment tax.
What Happens After You File
After you submit your individual income tax return with Schedule SE, the IRS processes your self-employment tax information and shares it with the Social Security Administration. Your reported earnings are credited toward your Social Security record and future Medicare benefits. If the IRS finds errors in your calculations, it may send a correction notice or request additional information.
Keeping your business records, receipts, and tax forms for at least three years ensures accuracy and compliance with tax regulations. Self-employed individuals should also plan estimated tax payments for the next year to avoid penalties and maintain proper tax coverage. To confirm your reported earnings and IRS processing, use our IRS account transcript services to obtain official records.
FAQs
Do I need to file Schedule SE if I have a W-2 job in addition to my self-employment income?
Yes, if you also earn self-employment income, you must file Schedule SE and use the Long Schedule SE to calculate both your Social Security and Medicare taxes correctly.
Can I deduct all my self-employment tax?
No, only half of your total self-employment tax is deductible as an adjustment to your adjusted gross income.
Does age exempt me from paying self-employment taxes?
No, self-employed individuals must pay self-employment tax regardless of age or whether they currently receive Social Security benefits.
Do both spouses need separate Schedule SE forms?
Yes, each self-employed person must file a separate Schedule SE if both spouses have earnings from self-employment.
When should I pay estimated taxes?
You must make quarterly estimated tax payments if you expect to owe $1,000 or more in total tax liability after credits. If you expect to owe more than you can pay at once, explore IRS payment plan options to manage your self-employment tax liability.
