What IRS Schedule SE (Form 1040) (2023) Is For
IRS Schedule SE (Form 1040) (2023) is used to calculate self-employment tax on self-employment income earned by self-employed individuals, independent contractors, sole proprietors, and small business owners. The form determines the amount of Social Security and Medicare taxes owed based on net earnings from self-employment so that these earnings count toward Social Security benefits and future Social Security coverage.
It also clarifies that self-employment income is included for income tax purposes and affects Medicare tax obligations tied to a self-employed person’s long-term earnings record. If you have questions about any IRS forms required for your self-employment taxes, our IRS Form Help Center is a valuable resource.
When You’d Use IRS Schedule SE (Form 1040) (2023)
You use this form whenever your earnings qualify as self-employment income for federal tax purposes.
- Self-employment income of $400 or more: You must file Schedule SE when your net earnings from self-employment are at least $400 because the IRS requires self-employed individuals to pay self-employment taxes once this minimum threshold is reached.
- Church employee income of $108.28 or more: You must file the form when church employee income meets or exceeds the stated amount because this income is treated as income subject to self-employment tax.
- Gig income or independent contractor work: You must file Schedule SE when you earn gig income or payments as an independent contractor because these types of services performed are considered self-employment and must be reported.
- Sole proprietorship or small business operations: You must file the form when operating a sole proprietorship or small business because self-employment contributions and Social Security taxes must be calculated and reported.
- Farm or partnership involvement: You must file Schedule SE when you have farm partnerships or net farm profit because these categories of earned income are subject to self-employment tax under IRS rules.
If you missed a required filing, learn more about resolving unfiled federal tax returns.
Key Rules or Details for Tax Year 2023 for IRS Schedule SE (Form 1040) (2023)
Several tax year requirements determine how you calculate net earnings and self-employment tax.
- Self-employment tax rate: The self-employment tax rate of 15.3 percent applies to eligible earnings, as this rate covers both the Social Security tax and Medicare tax portions owed by a self-employed individual.
- Social Security wage base limit: The wage base limit applies because only earnings up to the annual Social Security threshold are subject to the Social Security portion of the tax.
- Additional Medicare Tax: The additional Medicare tax applies to higher earners because taxable income above the threshold requires an extra percentage of Medicare taxes.
- 92.35 percent net earnings rule: The 92.35 percent adjustment applies because self-employment tax is calculated on adjusted net earnings rather than full net profit.
- Separate filing for spouses: Each spouse must complete a separate filing when both have self-employment income, as self-employment tax cannot be combined on a single form.
- Income categories excluded: Certain earnings, such as rental value, may be excluded because these amounts are not treated as services performed for self-employment purposes.
Step-by-Step (High Level)
Filing Schedule SE requires several sequential steps that determine how much self-employment tax you must pay.
- Calculate net profit: You calculate net profit by reporting gross income and subtracting business expenses on Schedule C because this establishes the base amount used to determine net earnings for self-employment tax.
- Determine net earnings: You determine your net earnings by multiplying your net profit by 92.35 percent because the IRS instructs taxpayers to adjust net earnings before calculating self-employment tax.
- Apply tax rates: You apply the Social Security and Medicare rates to your adjusted earnings because these rates determine the total self-employment tax owed on net self-employment income.
- Choose optional methods: You choose optional methods if you qualify because these methods can increase earned income used for credits or help maintain Social Security coverage when income is low.
- Transfer to Form 1040: You report the calculated self-employment tax on your annual tax return because the amount becomes part of your total income taxes and affects your adjusted gross income.
For those facing major self-employment tax debt, the IRS Offer in Compromise program may allow you to settle for less than you owe.
Common Mistakes and How to Avoid Them
Many self-employed workers encounter issues when completing Schedule SE.
- Not filing because income seems low: You can avoid this mistake by tracking all self-employment income because the IRS requires filing Schedule SE once net earnings reach $400.
- Ignoring partnership or farm income: You can avoid this mistake by reviewing income from farm partnerships or other self-employed individuals because these earnings are subject to self-employment tax even if no cash distribution occurs.
- Confusing gross income with net earnings: You can avoid this mistake by calculating net earnings accurately because the self-employment tax applies only to net profit after business expenses.
- Missing estimated taxes: You can avoid this mistake by making estimated tax payments quarterly because self-employed workers are responsible for ongoing tax obligations throughout the year.
- Incorrect community property allocation: You can avoid this mistake by reviewing the rules for individual circumstances, as misallocating earnings can result in incorrect Social Security and Medicare taxes.
- Misusing exclusions: You can avoid this mistake by confirming which exclusions apply because foreign income exclusions and specific adjustments do not reduce self-employment tax.
If you owe more than expected after filing, IRS payment plan options can help you manage payments over time.
What Happens After You File IRS Schedule SE (Form 1040) (2023)
After filing Schedule SE, the IRS adds your self-employment tax to the total amount shown on your individual income tax return, which determines whether you owe additional tax payments or qualify for a tax refund. The IRS also uses the reported earnings to update your Social Security taxes and credits that contribute to future Social Security benefits. Your filing may also affect eligibility for tax breaks or other adjustments. Maintaining records helps support any future tax advice, audits, or income verification needs related to your self-employment activity.
You can obtain an IRS account transcript to confirm that your self-employment tax and earnings were reported correctly.
FAQs
Does a self-employed person always have to pay self-employment tax?
A self-employed person must pay self-employment tax when net earnings reach at least $400 because the IRS treats this threshold as taxable income for Social Security and Medicare purposes.
Which types of earned income require filing Schedule SE?
You must file Schedule SE when you have earnings from self-employment, such as gig income, independent contractor payments, farm income, or other self-employed individuals’ income, because these categories are subject to self-employment tax.
Can independent contractors reduce self-employment taxes through deductions?
Independent contractors can lower their self-employment tax by deducting ordinary and necessary business expenses, as these reduce their net profit and the amount of income subject to self-employment tax.
What optional methods apply to net farm profit or low earnings?
Optional methods may be available if your net farm profit or nonfarm earnings are low because the IRS allows specific calculations to help maintain Social Security coverage or credit eligibility.
