What the Form Is For

Schedule SE (Form 1040) is the IRS form self-employed individuals use to calculate and report self-employment tax—which covers your Social Security and Medicare contributions when you work for yourself. When you're an employee, your employer withholds these taxes from your paycheck and matches your contribution. But when you're self-employed, you're responsible for paying both the employee and employer portions, totaling 15.3% of your net earnings (12.4% for Social Security plus 2.9% for Medicare).

The Social Security Administration uses the information from your Schedule SE to calculate your future retirement, disability, and survivor benefits. Even if you're already receiving Social Security or Medicare benefits, or you're of retirement age, you still must pay self-employment tax on current earnings. This ensures your work continues contributing to the social safety net system.

Schedule SE applies to a wide range of self-employed workers: freelancers, independent contractors, sole proprietors, most partners in partnerships, gig economy workers, and even certain ministers and church employees. If you earned net self-employment income of $400 or more in 2015, you likely need to file this schedule with your Form 1040. IRS Schedule SE Instructions

When You'd Use (Late/Amended)

For the 2015 tax year, the original filing deadline was April 18, 2016 (or October 17, 2016 with an extension). However, tax situations don't always go perfectly, and you may need to address Schedule SE after these deadlines have passed.

Late Filing

If you didn't file your 2015 return by the deadline and owe self-employment tax, the IRS charges penalties. The failure-to-file penalty is typically 5% of unpaid taxes for each month (or part of a month) your return is late, up to 25% maximum. Additionally, interest accrues on unpaid taxes. If you're filing late, prepare your 2015 Schedule SE along with Form 1040. Note that prior-year returns cannot be filed electronically—you must print and mail them to the appropriate IRS address.

Amended Returns

If you've already filed your 2015 return but made an error calculating your self-employment tax, you'll need to file Form 1040X (Amended U.S. Individual Income Tax Return) along with a corrected Schedule SE. Common reasons for amending include discovering additional self-employment income you didn't report, incorrectly calculating net earnings, or failing to include partnership income subject to self-employment tax. Generally, you have three years from the date you filed your original return to file an amendment and claim a refund. If the amendment shows you owe additional self-employment tax, file it as soon as possible to minimize interest and penalties.

Key Rules for 2015

Understanding the specific 2015 thresholds and rates is crucial for accurate filing:

Income Threshold

You must file Schedule SE if your net self-employment earnings were $400 or more in 2015. This is your gross self-employment income minus allowable business expenses. Even if this is your only filing requirement and you don't otherwise need to file Form 1040, you must still file to report self-employment tax.

Tax Rates

The self-employment tax rate for 2015 was 15.3% total, comprised of:

• 12.4% for Social Security (old-age, survivors, and disability insurance)
• 2.9% for Medicare (hospital insurance)

Social Security Wage Base

For 2015, only the first $118,500 of your combined wages and net self-employment earnings was subject to the 12.4% Social Security portion. All earnings above this threshold were still subject to the 2.9% Medicare portion with no cap. If you had both W-2 wages and self-employment income totaling more than $118,500, your Social Security tax calculation becomes more complex—you may need to use the Long Schedule SE.

Net Earnings Calculation

You don't pay self-employment tax on your gross income. Instead, you multiply your net profit by 92.35% to determine your actual self-employment earnings. This adjustment accounts for the employer portion of the tax and ensures self-employed individuals are treated similarly to employees for tax purposes.

Deduction Benefit

The good news is you can deduct one-half (50%) of your self-employment tax on Form 1040, line 27. This reduces your adjusted gross income (AGI), potentially lowering your overall income tax liability—though not your self-employment tax itself. IRS Schedule SE Form

Step-by-Step (High Level)

Filing Schedule SE involves several straightforward steps:

Step 1: Determine Which Schedule SE to Use

The IRS provides a helpful flowchart on page 1 of Schedule SE. Most self-employed individuals with straightforward situations can use the Short Schedule SE (Section A, front page). You must use the Long Schedule SE (Section B, back page) if you: received wages or tips exceeding certain thresholds, are a minister with special tax status, received church employee income, use optional methods to figure net earnings, or had unreported tips or certain uncollected taxes.

Step 2: Calculate Your Net Profit or Loss

Gather your completed tax forms showing self-employment income:

• Schedule C (or Schedule C-EZ): Business profit or loss
• Schedule F: Farm profit or loss
• Schedule K-1 (Form 1065): Partnership income with self-employment earnings

Report the net profit or loss from these sources on lines 1a, 1b, and 2 of Schedule SE as applicable.

Step 3: Compute Net Earnings from Self-Employment

Combine your income sources, then multiply by 92.35% (.9235) to calculate your net earnings from self-employment. This is the amount subject to self-employment tax. If this amount is less than $400 (and you don't have Conservation Reserve Program payments), you don't owe self-employment tax.

Step 4: Calculate the Tax

For Short Schedule SE users with net earnings of $118,500 or less: multiply your line 4 amount by 15.3% (.153). This is your total self-employment tax. If your earnings exceeded $118,500, you'll multiply the excess by 2.9% (.029) and add $14,694 (which represents the maximum Social Security tax).

Step 5: Transfer Amounts to Form 1040

Enter your self-employment tax on Form 1040, line 57. Calculate one-half of this amount and enter it as a deduction on Form 1040, line 27. This completes your Schedule SE filing.

Common Mistakes and How to Avoid Them

Even experienced taxpayers make errors on Schedule SE. Here are the most frequent mistakes and prevention strategies:

Mistake #1: Forgetting to File Schedule SE

Many new self-employed workers don't realize they need to file Schedule SE separately from reporting their business income on Schedule C. If you had net self-employment income of $400 or more, Schedule SE is mandatory—even if you owe no income tax. Prevention: Always check if Schedule SE is required when filing Schedule C, C-EZ, F, or receiving partnership K-1s.

Mistake #2: Incorrect Net Earnings Calculation

Some taxpayers multiply their gross income (instead of net profit) by 92.35%, resulting in drastically overstated self-employment tax. Others forget the 92.35% multiplier entirely. Prevention: Always start with your net profit after all business expenses, then apply the 92.35% rate.

Mistake #3: Using the Wrong Schedule SE Section

Choosing between Short and Long Schedule SE can be confusing. Using the wrong section can lead to incorrect calculations, especially if you have W-2 wages in addition to self-employment income. Prevention: Carefully follow the flowchart on page 1 of Schedule SE. When in doubt, the Long Schedule SE works for everyone.

Mistake #4: Missing the 50% Deduction

Many taxpayers calculate their self-employment tax correctly but forget to claim the one-half deduction on Form 1040, line 27. This is essentially free money—a deduction that reduces your taxable income. Prevention: Always complete line 6 of Schedule SE and transfer that amount to Form 1040, line 27.

Mistake #5: Partnership Income Errors

Partners often misreport their share of partnership income or forget that guaranteed payments are subject to self-employment tax. Prevention: Carefully review your Schedule K-1, box 14, code A. This amount generally goes on Schedule SE. Consult the K-1 instructions if you're uncertain.

Mistake #6: Ignoring Community Property Rules

In community property states, married couples filing separately must properly allocate self-employment income based on who actually performed the work—not necessarily 50/50. Prevention: If married filing separately in a community property state, review IRS Publication 555 or consult a tax professional.

What Happens After You File

Once you've submitted your 2015 Form 1040 with Schedule SE attached:

IRS Processing

The IRS will process your return and verify your self-employment tax calculation. This typically involves matching your Schedule SE amounts to your Schedule C, F, or partnership K-1 forms. Processing times for paper returns (which all 2015 late returns must be) can take 6-8 weeks or longer.

Payment of Tax Owed

If you owe self-employment tax, payment is due by the original filing deadline (April 18, 2016 for the 2015 tax year). Late payments accrue interest and penalties. If filing late, include full payment with your return to minimize additional charges.

Social Security Credits

The earnings reported on your Schedule SE are transmitted to the Social Security Administration, where they're credited to your Social Security earnings record. These credits determine your eligibility for retirement, disability, and survivor benefits. You can verify your earnings record by creating an account at SSA.gov.

Quarterly Estimated Taxes

For ongoing self-employment, the IRS expects you to pay taxes throughout the year via quarterly estimated tax payments (Form 1040-ES). Your 2015 Schedule SE helps determine your 2016 estimated tax obligations. Failing to pay adequate estimated taxes can result in underpayment penalties.

Refunds

If your withholding and estimated payments exceeded your total tax liability (including self-employment tax), you'll receive a refund. For 2015 returns filed late, refunds can take several months to process.

Audit Considerations

Self-employment income triggers slightly higher audit rates than W-2 wage income. The IRS may request documentation of your business income and expenses. Keep detailed records for at least three years (six years for substantial underreporting).

FAQs

Q1: Do I really have to pay both the employer and employee portions of Social Security and Medicare?

Yes. When you work for an employer, they withhold 7.65% from your paycheck and match it with another 7.65%, totaling 15.3%. As a self-employed person, you're both employer and employee, so you pay the full 15.3%. However, you get to deduct half of it (the "employer" portion) on Form 1040, line 27, which reduces your income tax burden somewhat.

Q2: What if my business lost money in 2015—do I still file Schedule SE?

If your business had a net loss, you generally don't owe self-employment tax on that business. However, if you had other self-employment income totaling $400 or more, you still need to file Schedule SE. Additionally, even with a loss, you might benefit from filing Schedule SE using the optional methods, which can help you maintain Social Security coverage credits.

Q3: I have a regular job with W-2 wages and also freelance on the side. How does this affect my Schedule SE?

You'll need to file Schedule SE for your freelance income if it totals $400 or more. Here's the important part: your W-2 wages count toward the $118,500 Social Security wage base for 2015. If your W-2 wages were $100,000 and your net self-employment earnings were $30,000, only $18,500 of your self-employment income would be subject to the 12.4% Social Security tax (though all of it faces the 2.9% Medicare tax). Use Long Schedule SE for this calculation.

Q4: Can I avoid self-employment tax by forming an LLC or corporation?

Forming an LLC alone doesn't change your self-employment tax situation—single-member LLCs are typically taxed as sole proprietorships. However, electing S-corporation status can potentially reduce self-employment tax because you take a reasonable salary (subject to payroll taxes) and remaining profits are distributions (not subject to self-employment tax). This strategy has significant compliance requirements and isn't right for everyone. Consult a tax professional.

Q5: What are the optional methods mentioned in Part II of Long Schedule SE, and should I use them?

The optional methods (farm and nonfarm) allow you to report self-employment income even when you had low earnings or a loss. This can be beneficial for maintaining Social Security coverage or qualifying for the Earned Income Credit, Additional Child Tax Credit, or child and dependent care credit. The farm optional method can be used unlimited times; the nonfarm optional method is limited to five years during your lifetime. Review the instructions carefully or consult a tax professional to determine if optional methods benefit your situation.

Q6: I'm a rideshare driver/freelance writer/gig worker. Does Schedule SE apply to me?

Absolutely. If you're classified as an independent contractor (you'll receive Form 1099-NEC or 1099-MISC rather than W-2), and your net earnings after expenses are $400 or more, you must file Schedule SE. This applies to all types of gig economy work, freelancing, consulting, and independent contracting.

Q7: Where can I find help if I'm confused about Schedule SE for my 2015 return?

The IRS offers several resources: the official Instructions for Schedule SE, IRS Publication 334 (Tax Guide for Small Business), and Publication 225 (Farmer's Tax Guide). You can also call the IRS Business and Specialty Tax Line at 1-800-829-4933. For complex situations, consider hiring a CPA, enrolled agent, or tax attorney who specializes in self-employment tax issues.

Additional Resources

• 2015 Schedule SE Form
• 2015 Schedule SE Instructions
• IRS Schedule SE Information Page

This guide provides general information for educational purposes. Tax situations vary, and you should consult the official IRS instructions or a qualified tax professional for advice specific to your circumstances.