What IRS Schedule SE (Form 1040) (2024) Is For

IRS Schedule SE (Form 1040) (2024) is used to calculate self-employment tax on net earnings from self-employment and to report those earnings to the Social Security Administration for Social Security and Medicare purposes. The form ensures that self-employed individuals, independent contractors, sole proprietors, and other self-employed workers pay self-employment taxes that include both Social Security tax and Medicare tax. 

The calculation applies to net self-employment income and contributes to Social Security coverage and future Social Security benefits. Unsure which schedule or form you need? Visit our IRS Form Help Center for answers and support.

When You’d Use IRS Schedule SE (Form 1040) (2024)

Several situations require taxpayers to file Schedule SE as part of their individual income tax return.

1. Self-employment income of $400 or more: This applies when a self-employed individual has net earnings from self that reach at least $400 and therefore must calculate self-employment taxes on their annual tax return.
   
   
2. Church employee income of $108.28 or more: This applies when a church employee receives qualifying church employee income from services performed for a church that does not withhold Social Security taxes.
   
   
3. Independent contractor or sole proprietor income: This applies when an independent contractor or sole proprietor must report earnings from self-employment and pay self-employment tax, even if they also earn wages from another job.
   
   
4. Gig income or small business income subject to self-employment tax: This applies when a self-employed person receives gig income or operates a small business and must pay self-employment tax, regardless of whether income taxes are owed.

If you missed a required filing in a previous year, learn how to resolve unfiled federal tax returns and avoid penalties.

Key Rules or Details for the 2024 Tax Year

The 2024 tax year includes several essential requirements that affect how taxpayers calculate and pay self-employment tax.

1. Social Security wage base limit of $168,600: This sets the maximum amount of income subject to Social Security tax, after which only Medicare taxes apply for the remainder of the total self-employment income.
   
   
2. Self-employment tax rate of 15.3 percent: This requires taxpayers to apply the combined employer and employee portions for Social Security and Medicare when calculating self-employment tax.
   
   
3. Additional Medicare Tax for higher earners: This applies when total earnings from self-employment exceed the threshold for the taxpayer’s filing status and require the calculation of additional Medicare tax.
   
   
4. Separate calculations for married taxpayers: This requires each spouse considered self-employed to complete a separate Schedule SE because income subject to SE tax must be calculated individually.
   
   
5. Deduction for half of SE tax: This allows taxpayers to reduce their adjusted gross income, as half of the SE tax is deductible for income tax purposes.

Step-by-Step (High Level)

The steps below outline how to calculate net earnings and complete Schedule SE accurately for the 2024 tax year.

1. Gather all forms showing self-employment income: This requires collecting documents such as Schedule C, gross farm income records, farm partnership forms, and any documentation showing net profit or losses from self-employment earnings.
   
   
2. Determine whether to use the short schedule SE or long schedule SE: This depends on whether optional methods apply or whether a taxpayer needs to qualify for Social Security coverage or the earned income credit.
   
   
3. Calculate net earnings from self: This involves multiplying net earnings by 92.35% to calculate the net earnings used to determine SE tax.
   
   
4. Apply the self-employment tax rate to your earnings: This step involves applying the correct tax rate for Social Security tax and Medicare tax, based on the income subject to each portion.
   
   
5. Transfer the total SE tax to Form 1040: This step requires entering the SE tax on the annual tax return and taking the permitted deduction that reduces taxable income.
   
   
6. Review whether additional Medicare tax applies: This confirms whether your income is subject to Medicare taxes and exceeds the threshold that triggers the additional Medicare tax.
   
   
7. Plan future estimated taxes: This helps self-employed workers calculate estimated taxes and avoid a large tax bill in the next tax year.

For those unable to pay their full self-employment tax, the IRS Offer in Compromise program may offer a way to settle for less.

Common Mistakes and How to Avoid Them

Several common errors occur when taxpayers calculate self-employment taxes and report their income on Schedule SE.

• Missing the $400 threshold: You should file Schedule SE whenever total self-employment income reaches $400 because failing to do so can result in underpaid Social Security taxes and Medicare taxes.
  
  
• Forgetting the 92.35 percent reduction: You should apply the 92.35 percent adjustment to calculate net earnings so you do not overpay Social Security and Medicare obligations.
  
  
• Misreporting partnership or farm income: You should report net farm profit or partnership amounts exactly as required because incorrect entries can result in inaccurate SE tax calculations.
  
  
• Not taking the deduction for half of the SE tax: You should claim the deduction for half of the SE tax to properly reduce adjusted gross income and avoid paying higher income taxes than necessary.
  
  
• Skipping optional methods: You should evaluate whether optional methods help you maintain Social Security coverage or qualify for the earned income credit when your net earnings are low.

If you owe more than you can pay right away, IRS payment plan options can help you manage your tax liability over time.

What Happens After You File

Once you file Schedule SE with your Form 1040, the IRS processes your self-employment tax as part of your overall tax return and applies the payment toward your Social Security and Medicare accounts. The Social Security Administration credits your reported net earnings toward future Social Security benefits and Social Security retirement calculations. 

If you owe additional estimated tax, the IRS updates your tax bill accordingly and may require you to adjust estimated taxes for the next tax year. Self-employed individuals should maintain complete records of their gross income, business expenses, and deductible items in case questions arise or a tax professional needs to review their return.

You can order an IRS account transcript to verify that your self-employment income and tax payments were correctly recorded.

FAQs

Do I need to file Schedule SE if I am already receiving Social Security retirement benefits?

Yes, you must file Schedule SE if you have net earnings from self-employment, as those earnings remain subject to self-employment tax and can increase your future Social Security benefits.

How does Schedule SE affect taxable income and adjusted gross income?

Schedule SE affects taxable income by requiring payment of self-employment tax and affects adjusted gross income by allowing a deduction for half of the SE tax as an above-the-line adjustment.

What if I have both W-2 wages and self-employment income?

Your W-2 wages count toward the Social Security wage base, and your self-employment income is added afterward to calculate any remaining Social Security tax and Medicare tax that may apply.

How do optional methods help small business owners or sole proprietors?

Optional methods can increase reported earnings for Social Security coverage and help taxpayers qualify for the earned income credit when net earnings are low.