What the Form Is For

Schedule SE (Form 1040) is the IRS form used to calculate self-employment (SE) tax on your net earnings from self-employment. This tax funds your Social Security and Medicare benefits, just like the FICA taxes withheld from traditional employees' paychecks. The key difference is that self-employed individuals must calculate and pay both the employer and employee portions themselves.

The Social Security Administration uses information from Schedule SE to determine your future benefits under the social security program. This applies regardless of your age and even if you're already receiving Social Security or Medicare benefits. If you work for yourself as a sole proprietor, independent contractor, freelancer, or as a partner in a business, Schedule SE is how you contribute to the social security system.

In 2016, self-employment tax consisted of two components: 12.4% for Social Security (on earnings up to $118,500) and 2.9% for Medicare (on all earnings), totaling 15.3%. Unlike employees who split this cost with their employer, self-employed individuals pay the full amount—but receive a valuable deduction for half of this tax when calculating their income tax.

IRS.gov

When You’d Use Schedule SE (Late or Amended)

Original Filing Deadline

Schedule SE must be filed along with your Form 1040 by the regular tax deadline—for 2016 taxes, this was April 18, 2017 (or October 16, 2017 with an extension).

Late Filing

If you failed to file Schedule SE with your original 2016 return but had net self-employment earnings of $400 or more, you should file as soon as possible. The IRS can assess penalties and interest on unpaid self-employment tax, so prompt filing minimizes these costs. Simply complete Schedule SE and attach it to a Form 1040 for tax year 2016, even if filing late.

Amended Returns

If you need to correct your self-employment tax calculation—perhaps you discovered additional business income, forgot to claim deductible expenses, or made a calculation error—you'll need to file Form 1040X (Amended U.S. Individual Income Tax Return). Complete a new Schedule SE with the correct figures, attach it to Form 1040X, and clearly explain the changes in Column A (original amounts), Column B (net change), and Column C (correct amounts).

You have three years from the original filing date or two years from when you paid the tax (whichever is later) to file an amended return and claim a refund.

Common Amendment Scenarios

• Missed business expenses that reduce net profit
• Corrected Schedule K-1 forms from partnerships
• Qualification for optional methods that reduce tax burden

IRS.gov

Key Rules for 2016

Filing Threshold

You must file Schedule SE if your net earnings from self-employment were $400 or more, or if you had church employee income of $108.28 or more.

Social Security Wage Base

For 2016, only the first $118,500 of combined wages and self-employment income was subject to the 12.4% Social Security portion of the tax.

Tax Rate Structure

The self-employment tax rate was 15.3% (12.4% + 2.9%) on 92.35% of your net profit. You multiply your net profit by 0.9235 first, then apply the rate.

Additional Medicare Tax

If your combined income exceeded:

• $200,000 (single filers)
• $250,000 (married filing jointly)
• $125,000 (married filing separately)

…then an additional 0.9% Medicare tax applied.

Deduction Benefit

You can deduct one-half (50%) of your self-employment tax as an adjustment to income on Form 1040, line 27.

Optional Methods

The IRS offered:

• Farm Optional Method
• Nonfarm Optional Method

These could help you qualify for Social Security or Earned Income Credit even with low income.

IRS.gov

Step-by-Step (High Level)

Step 1: Determine Which Schedule to Use

Use the flowchart on page 1 of Schedule SE to decide if you can use Short Schedule SE (Section A) or must use Long Schedule SE (Section B).

Step 2: Calculate Net Earnings

Gather your net profit or loss from:

• Schedule F (farm income)
• Schedule C or C-EZ (nonfarm income)
• Partnerships (Schedule K-1)

Step 3: Apply the 92.35% Factor

Multiply total net earnings by 0.9235.

Step 4: Calculate Self-Employment Tax

• For $118,500 or less: Multiply by 15.3%
• For more: Multiply by 2.9%, then add $14,694

Step 5: Calculate Your Deduction

Multiply your SE tax by 50%. Enter on Form 1040, line 27.

Step 6: Transfer Amounts to Form 1040

Enter SE tax on Form 1040, line 57, and attach Schedule SE.

IRS.gov

Common Mistakes and How to Avoid Them

Mistake #1: Not Filing When Required

Even with just $400 in net profit, you must file Schedule SE.

Mistake #2: Forgetting the 92.35% Adjustment

Always multiply net profit by 0.9235 before applying 15.3%.

Mistake #3: Including Statutory Employee Income

Don’t include income from W-2s with box 13 checked.

Mistake #4: Miscalculating Combined Income

If you have both wages and self-employment income, use Long Schedule SE.

Mistake #5: Missing the Self-Employment Tax Deduction

Always claim 50% of SE tax as an income adjustment.

Mistake #6: Ignoring Optional Methods

These can help you qualify for credits or Social Security.

Mistake #7: Community Property Complications

Report income for the spouse who earned it—don’t split unless a joint venture.

IRS.gov

What Happens After You File

Social Security Credits

Your SE income is reported to SSA for benefit calculation.

Payment Obligation

Pay SE tax with your return or through quarterly estimated taxes (Form 1040-ES).

IRS Processing

The IRS reviews your Schedule SE for math errors or inconsistencies.

Refund or Balance Due

The SE tax increases liability but the deduction lowers taxable income.

Medicare and Social Security Benefits

SE tax payments count toward future eligibility.

Audit Potential

Self-employment income has higher audit risk—keep records at least three years.

IRS.gov

FAQs

Q1: What if my business had a loss in 2016?

You don’t owe SE tax, but may file optional methods to earn credits.

Q2: I have a regular job and freelance income—how does this affect SE tax?

If your wages already meet the $118,500 base, only Medicare applies to SE earnings.

Q3: Can I reduce SE tax by forming an LLC or S-corp?

LLC status doesn’t reduce SE tax; S-corp election may, but seek professional advice.

Q4: I received a 1099-MISC for $3,000—do I owe SE tax?

If net profit ≥ $400 after expenses, yes—you owe SE tax.

Q5: What’s the payment deadline or estimated tax schedule?

Self-employment tax is due at filing; estimated taxes are due quarterly.

Q6: Are ministers subject to SE tax?

Usually yes, unless exempt via Form 4361.

Q7: Can I deduct SE tax, and where?

Yes—deduct 50% on Form 1040, line 27.

IRS.gov

Additional Resources

• IRS Publication 334 — Tax Guide for Small Business
• IRS Publication 225 — Farmer’s Tax Guide
• IRS Publication 517 — For ministers and clergy
• IRS Publication 555 — Community Property rules
• Form 1040-ES — Estimated tax vouchers
• IRS.gov/schedulese — Latest forms and updates

This summary is based on authoritative IRS sources for tax year 2016. Tax laws change regularly, so always consult current IRS guidance or a qualified tax professional for your specific situation.