Instructions for Schedule SE 2016 Checklist
Overview of Schedule SE for Tax Year 2016
Schedule SE for tax year 2016 computes self-employment tax for individuals with net earnings from self-employment, including certain partnership earnings and certain church employee income. You use it to calculate the Social Security and Medicare tax due on qualifying earnings, and you report that tax on Form 1040 as part of your total tax.
Affordable Care Act rules applied to the 2016 tax year, including the shared responsibility payment rules on Form 1040 and coverage exemptions on Form 8965. Schedule SE does not calculate the shared responsibility payment; it focuses on self-employment tax amounts and the deduction for one-half of that tax on Form 1040.
Who Must File Schedule SE for 2016
The requirements for filing Schedule SE depend on the amounts calculated within Schedule SE.
You determine whether you must file by following the Schedule SE instructions and applying the filing thresholds to the correct lines.
You must file Schedule SE if either condition applies
- The amount reported on line 4 of the Short Schedule SE or line 4c of the Long Schedule
SE is $400 or more.
- You also had church employee income of $108.28 or more, subject to stated exceptions.
Income Sources Used for Schedule SE
Schedule SE uses income from specific sources that qualify as net earnings from self-employment. You should confirm the source type before you transfer figures to Schedule
SE to avoid incorrect reporting.
Common sources include
- Net profit or loss from Schedule C, line 31, or Schedule C-EZ, line 3, qualifies as
self-employment income.
- Net farm profit or loss from Schedule F, line 34, also qualifies as self-employment
income.
- Net earnings from self-employment reported on a partnership Schedule K-1 (Form
1065), in box 14 with the applicable code, are included as self-employment income.
- Certain church employee income is also subject to self-employment tax rules.
S corporation pass-through income generally does not count as net earnings from self-employment for Schedule SE purposes. S corporation wages are handled through payroll and employment tax reporting.
Ten-Step Checklist
Step 1: Gather Required Documents
Collect Schedule C or Schedule C-EZ, Schedule F when applicable, and partnership Schedule
K-1 (Form 1065) if you earn partnership self-employment earnings. Collect Forms The
1099-MISC for 2016 reports nonemployee compensation, which is commonly found in Box 7.
Ensure that your records accurately reflect the net profit or loss indicated on the schedules you plan to use.
Step 2: Determine Which Schedule SE Section Applies
Use the Schedule SE flowchart to determine whether you may use the Short Schedule SE or must use the Long Schedule SE. The flowchart addresses specific situations, including certain wage items, church employee income, optional methods, and other reporting conditions. Follow the flowchart result and complete the required section for your situation.
Step 3: Transfer Net Profit or Loss From Schedule C or C-EZ
Enter your business net profit or loss from Schedule C line 31 or Schedule C-EZ line 3 on
Schedule SE line 2. Determine whether you owe self-employment tax based on the net earnings calculation that follows, including the $400 filing threshold and the church employee income trigger. Keep your business schedules consistent with the amounts you enter on Schedule SE.
Step 4: Enter Partnership Self-Employment Earnings When Applicable
If you are a partner in a partnership, review Schedule K-1 (Form 1065), Box 14 for net earnings from self-employment and related codes. Include qualifying amounts on the appropriate
Schedule SE lines as instructed, including guaranteed payments when they qualify as self-employment earnings. Do not treat an S corporation Schedule K-1 as a source of net earnings from self-employment for Schedule SE.
Step 5: Compute Net Earnings Using the 92.35 Percent Factor
Calculate net earnings from self-employment by applying the 92.35 percent factor to qualifying net profit or loss, following the Schedule SE line instructions. This step determines the amount subject to self-employment tax and supports the later Social Security wage base calculation.
Treat this step as part of the computation for the self-employment tax base, not as an income tax deduction.
Step 6: Compute Self-Employment Tax Using 2016 Limits
Compute the Social Security portion of self-employment tax using the 2016 Social Security wage base limit, and compute the Medicare portion without a wage base limit. Complete the wage base reduction steps when required, including the lines that account for Social Security wages and tips from Form W-2 on the Long Schedule SE. Use the Schedule SE line instructions to ensure you apply the cap correctly.
Step 7: Calculate Total Self-Employment Tax and Report It Correctly
Add the Social Security and Medicare components to reach the total self-employment tax on
Schedule SE line 12. Report that amount on Form 1040, line 57, for tax year 2016, as self-employment tax included in total tax. Treat this amount as a tax entry, since Form 1040 does not treat self-employment tax as an above-the-line deduction.
Step 8: Claim the Deduction for One-Half of Self-Employment Tax
Calculate the deduction for one-half of the self-employment tax on Schedule SE line 13.
Transfer the Schedule SE line 13 amount to Form 1040 line 27 for tax year 2016 as an adjustment to income. Use the Schedule SE instructions to confirm that the deduction follows the tax computation and relies on the total tax amount.
Step 9: Assemble Attachments Using Attachment Sequence Order
Attach Schedule SE to Form 1040 or Form 1040NR as required. Assemble attachments behind the return in the order indicated by each form’s attachment sequence number. Use this sequence method for paper filing, and keep copies of all schedules and supporting records for your files.
- Full IRS transcript retrieval (Wage & Income + Account)
- Professional tax form review
- Preparation & filing support
- Tax relief options if you owe the IRS
Step 10: Sign, Date, and File the Return
Sign and date the signature area on Form 1040 for the 2016 tax year. Review your return to confirm that Schedule SE amounts match the corresponding Form 1040 line entries, including the tax and the one-half deduction. Keep a complete copy for your records and use the IRS filing address instructions for the correct mailing location if you file on paper.
Additional Medicare Tax Treatment
The Additional Medicare Tax may apply to earned income above the applicable thresholds. You calculate Additional Medicare Tax on Form 8959, and you follow the instructions to incorporate self-employment income amounts where required.
Schedule SE calculates the regular self-employment tax, which includes the Social Security and
Medicare components. You handle the Additional Medicare Tax calculation through Form 8959 when it applies to your circumstances.
Nonresident Aliens and Coverage Determinations
Nonresident aliens do not pay self-employment tax in every case. A self-employed nonresident alien living in the United States pays self-employment tax when an international social security agreement determines U.S. coverage.
If self-employment income is subject to self-employment tax under that coverage determination, the taxpayer completes Schedule SE and files it with Form 1040NR. If U.S. coverage does not apply, self-employment tax may not be required.
Line and Section Updates for Schedule SE 2016
The 2016 Schedule SE uses line 2 to enter business net profit or loss from Schedule C or
Schedule C-EZ, and section 3 is a combined-lines step, per the form instructions. The schedule places the total self-employment tax on line 12 and the deduction for one-half of the self-employment tax on line 13.
The optional methods appear in the optional methods section of the schedule and apply only when you meet the eligibility rules described in the Schedule SE instructions. Taxpayers who do not qualify for optional methods use the regular calculation framework, which results in total self-employment tax on line 12.
If you’re missing tax documents or want to ensure the numbers you enter match IRS records, we can help.
