Instructions for Schedule SE 2018 Checklist
Overview of Schedule SE for Tax Year 2018
Schedule SE calculates the self-employment tax for 2018 based on net earnings from self-employment. Net earnings can come from Schedule C, Schedule C-EZ, Schedule F, specific partnership Schedule K-1 amounts, and certain other items described in the Schedule
SE instructions. The schedule computes the Social Security and Medicare components of the self-employment tax and provides the related deduction amount for one-half of those components.
Tax year 2018 includes the qualified business income deduction under Section 199A. The qualified business income deduction affects taxable income on Form 1040 and does not reduce the self-employment tax calculated on Schedule SE. Affordable Care Act individual coverage reporting still applies to 2018 returns and is not reported on Schedule SE.
Filing Triggers You Must Check First
Schedule SE filing is not based on gross receipts or a general idea of business income. The filing requirement is based on the Schedule SE thresholds and a separate church employee income trigger.
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
such as approved Forms 4029 or 4361.
Income Sources That Feed Schedule SE
Schedule SE applies only to qualifying net earnings from self-employment. You should confirm each source type before transferring amounts to Schedule SE.
Familiar sources include the following
- Net profit or loss from Schedule C, line 31, or Schedule C-EZ, line 3, counts as
self-employment income.
- Net farm profit or loss from Schedule F, line 34, also counts as self-employment income.
- Partnership net earnings from self-employment reported on Schedule K-1 (Form 1065),
box 14, code A, and related self-employment codes are included as self-employment income.
- Partnership net earnings from self-employment reported on Schedule K-1 (Form
1065-B), box 9, code J1, are also included.
- Certain church employee income is subject to SECA rules when the applicable trigger
applies.
K-1 amounts are not automatically self-employment earnings. The specific K-1 box and code determine whether an amount is included, and partner status can affect what is included.
Social Security Wage Base and Additional Medicare Tax
For 2018, the Social Security portion of self-employment tax applies to a maximum amount of
$128,400 in self-employment income. The Social Security limit is applied after considering other earnings subject to Social Security, including wages, when the Schedule SE lines require those entries.
The Medicare tax applies to net earnings, with no wage base cap. An additional Medicare Tax of
0.9 percent can apply above filing-status thresholds, and you compute it on Form 8959 when it applies.
Ten-Step Filing Checklist
Step 1: Gather the Correct Income Forms for 2018
Collect Schedule C, Schedule C-EZ, and Schedule F when they apply to your self-employment activity. Collect partnership Schedule K-1 forms that report net earnings from self-employment in the specific boxes and codes used for that purpose. Collect Form 1099-MISC for 2018 when it reports nonemployee compensation, which commonly appears in box 7.
Step 2: Confirm Whether You Must File Schedule SE
Determine whether the amount on line 4 of the Short Schedule SE or line 4c of the Long
Schedule SE is $400 or more. Determine whether you have church employee income of
$108.28 or more, since that trigger can require Schedule SE filing even when other earnings are lower. Verify if you have an approved exemption applicable to your situation when considering omitting Schedule SE.
Step 3: Use the Schedule SE Flowchart to Choose a Section
Use the flowchart on Schedule SE to determine whether you may use Section A, the Short
Schedule SE, or must use Section B, the Long Schedule SE. The flowchart addresses specific situations and directs the correct section based on those conditions. Do not choose a section based on general complexity or assumptions about “optional method” use.
Step 4: Enter Business and Farm Net Profit or Loss on the Correct Lines
Enter business net profit or loss from Schedule C line 31 or Schedule C-EZ line 3 on the
Schedule SE line that calls for that amount. Enter net farm profit or loss from Schedule F line 34 on the Schedule SE line that calls for farm profit or loss. Use the Schedule SE line labels to confirm you are using the correct entry line for each income type.
Step 5: Enter Partnership Self-Employment Earnings Using the Proper K-1
Codes
If you are a partner, use Schedule K-1 (Form 1065), box 14, code A, for net earnings (loss) from self-employment, plus related codes when they apply. If you have a Schedule K-1 (Form
1065-B), use box 9, code J1, when it applies to net earnings from self-employment. Apply the partner-specific limitations described in the Schedule SE instructions, including the rules that can differ for general and limited partners.
Step 6: Combine Multiple Business or Farm Amounts Correctly
If you have more than one business or farm activity subject to self-employment tax, combine the net profit and loss amounts as required by Schedule SE line instructions. Use one Schedule SE to figure the combined self-employment tax when the instructions require a combined computation. Confirm each source schedule is completed first, so the net profit or loss figures are final.
Step 7: Compute Net Earnings Using the 92.35 Percent Factor
Compute net earnings from self-employment using the Schedule SE computation that applies the 92.35 percent factor. This step determines the base amount used for self-employment tax.
Treat this as a calculation for the self-employment tax base rather than an income tax deduction.
Step 8: Apply the Social Security Wage Base and Medicare Rules
Apply the Social Security portion of self-employment tax to the amount that remains subject to
Social Security tax after applying the 2018 limit of $128,400. Apply the Medicare portion to net
earnings without a wage base limit. Complete the wage base-related lines the form requires, including any lines that consider wages for purposes of applying the Social Security limit.
Step 9: Report Self-Employment Tax and the Deduction on the Correct 2018
Forms
For 2018, put the total self-employment tax from Schedule SE on line 57 of Schedule 4 (Form
1040). The Schedule 4 amount then flows into Form 1040 line 14 as part of “Other taxes.” Enter the deduction for one-half of self-employment tax on Schedule 1 (Form 1040), line 27 for 2018, and allow it to flow into adjusted gross income through the Form 1040 computation.
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Step 10: Confirm the QBI Deduction Placement and Complete Filing Steps
Do not claim the qualified business income deduction on Schedule SE. Claim the qualified business income deduction on Form 1040, line 9, for 2018, and keep it separate from the
Schedule SE tax calculation. Sign and date Form 1040 after completing Schedule SE and the related schedules, and follow the filing instructions for your chosen filing method.
Form 1040 Line Placement Reminders for 2018
Form 1040, line 2 in 2018, is used for interest income, not for business income. Business income and farm income generally flow through Schedule 1 and then into Form 1040 total income and adjusted gross income lines, based on the return’s calculation steps.
Schedule SE is computed from net earnings figures taken from the business, farm, and partnership sources described in the Schedule SE instructions. You should confirm that the same income is not counted twice across schedules while you keep each schedule’s reporting purpose separate.
Nonresident Aliens and Coverage Determinations
Nonresident alien treatment for self-employment tax is not automatic based on earning income in the United States. A self-employed nonresident alien living in the United States must pay self-employment tax only if an international social security agreement determines U.S.
coverage.
If U.S. coverage applies, the taxpayer completes Schedule SE and files it with Form 1040NR as instructed. If U.S. coverage does not apply, self-employment tax may not be required for that taxpayer under the Schedule SE nonresident alien rules.
Material Changes to Note for 2018
Schedule SE retained its core structure for 2018. The year-specific updates that affect computations include the 2018 maximum amount of self-employment income subject to Social
Security tax, which is $128,400, and the continued use of Additional Medicare Tax rules calculated on Form 8959 when thresholds are exceeded.
Section 199 A applies to tax years beginning after December 31, 2017, and the 2018 Form
1040 includes the qualified business income deduction on line 9. The qualified business income deduction affects taxable income, and it does not reduce self-employment tax computed on
Schedule SE.
If you’re missing tax documents or want to ensure the numbers you enter match IRS records, we can help.
