What the Form Is For

Schedule SE (Form 1040) is the tax form used to calculate and report self-employment tax on income earned from running your own business or working for yourself. If you're self-employed—whether as a freelancer, independent contractor, small business owner, or farmer—this form calculates the Social Security and Medicare taxes you owe on your business earnings.

Unlike traditional employees who have these taxes automatically withheld from their paychecks (and whose employers pay half), self-employed individuals must pay both the employee and employer portions themselves. For 2020, the self-employment tax rate was 15.3% (12.4% for Social Security and 2.9% for Medicare) on net earnings. The Social Security Administration uses information from Schedule SE to determine your future Social Security benefits, so filing this form correctly ensures you receive proper credit toward your retirement and disability benefits.

The form consists of two main sections: Part I (Short Schedule SE) for most filers, and Part II (Long Schedule SE) which includes optional calculation methods. A new Part III was added for 2020 to allow self-employed persons to calculate and defer certain self-employment tax payments due to COVID-19 relief provisions. IRS.gov

When You'd Use It (Late/Amended Filing)

Regular Filing

You must file Schedule SE with your 2020 Form 1040 or 1040-SR if:

• Your net earnings from self-employment were $400 or more, OR
• You had church employee income of $108.28 or more

Schedule SE is filed as an attachment to your regular income tax return, which for 2020 was originally due on April 15, 2021 (though extensions were available).

Late Filing

If you missed the original deadline and haven't filed your 2020 return yet, you should file as soon as possible. Schedule SE is submitted along with your Form 1040. Late filing may result in penalties and interest on any self-employment tax owed. The IRS calculates penalties based on how late your return is and how much tax you owe.

Amended Returns

If you need to correct your 2020 Schedule SE after already filing—perhaps you discovered additional self-employment income, made calculation errors, or want to change from the regular method to an optional method—you must file Form 1040-X (Amended U.S. Individual Income Tax Return). According to IRS instructions, you can change your method of calculating net earnings from self-employment even after filing your original return by submitting Form 1040-X with a corrected Schedule SE attached. IRS.gov

Key Rules for 2020

Tax Rates and Maximums

• Self-employment tax rate: 15.3% total (12.4% Social Security + 2.9% Medicare)
• Maximum income subject to Social Security tax: $137,700
• No income limit for the 2.9% Medicare portion
• Additional Medicare Tax of 0.9% applies to self-employment income exceeding $200,000 (single) or $250,000 (married filing jointly)

Filing Thresholds

• Must file if net self-employment earnings were $400 or more
• Must file if church employee income was $108.28 or more
• The $400 threshold applies even if you're already receiving Social Security or Medicare benefits and regardless of your age

2020-Specific Changes

• New Part III was added to Schedule SE for calculating deferrable self-employment tax payments under the CARES Act
• The form changed from a two-person format to requiring separate Schedule SE forms for each spouse with self-employment income
• New refundable credits became available to certain self-employed persons affected by COVID-19 (reported on Form 7202)

Deduction Benefit

You can deduct one-half of your self-employment tax when calculating your adjusted gross income, which reduces your overall income tax burden. IRS.gov

Step-by-Step (High Level)

Step-by-Step: How to Complete Schedule SE (High Level)

Step 1: Determine Your Net Earnings

Gather your net profit or loss from Schedule C (business income), Schedule F (farm income), or your share of partnership income from Schedule K-1 (Form 1065). If you had multiple businesses, combine the net earnings from all sources.

Step 2: Choose Your Section

Most people use Part I (Short Schedule SE). You must use Part II (Long Schedule SE) only if you want to use optional calculation methods or if specific situations apply (such as being a minister with certain exemptions).

Step 3: Calculate Net Earnings from Self-Employment

Enter your business income on the appropriate lines. Multiply your net earnings by 92.35% (0.9235) to account for the deduction of the employer-equivalent portion of self-employment tax. This calculation happens automatically on the form.

Step 4: Apply the Social Security Wage Base

If your net earnings exceed $137,700 (for 2020), only the first $137,700 is subject to the 12.4% Social Security portion. All earnings are subject to the 2.9% Medicare portion.

Step 5: Calculate Your Tax

Multiply your adjusted net earnings by 15.3% to determine your self-employment tax. The form breaks this into Social Security and Medicare components.

Step 6: Complete Part III (If Applicable)

If you're electing to defer self-employment tax payments under CARES Act provisions, complete Part III to calculate your maximum deferral amount.

Step 7: Transfer to Form 1040

Enter your total self-employment tax from Schedule SE, line 12 on Schedule 2 (Form 1040), line 4. Enter your deduction for one-half of self-employment tax from Schedule SE, line 13 on Schedule 1 (Form 1040), line 15.

Common Mistakes and How to Avoid Them

1. Forgetting to File When Required

Many people with small side businesses assume they don't need to file if their income is modest. Remember: the threshold is only $400 in net earnings. Even if you don't owe income tax, you likely still owe self-employment tax. How to avoid: Track all self-employment income throughout the year, even from part-time or gig work.

2. Using Gross Income Instead of Net Earnings

Self-employment tax is calculated on net profit (income minus expenses), not gross revenue. Some taxpayers mistakenly calculate the tax on total receipts. How to avoid: Complete Schedule C or F first to determine your actual net profit, then transfer that amount to Schedule SE.

3. Not Multiplying by 92.35%

The law allows you to reduce your net earnings by 7.65% before calculating self-employment tax, but some people skip this step or do it incorrectly. How to avoid: Follow the form line-by-line carefully. The form guides you through this calculation automatically if you complete it in order.

4. Ignoring the Social Security Wage Base

If you had both W-2 wages and self-employment income, you might not owe Social Security tax on all self-employment income if your combined earnings exceed $137,700. How to avoid: Report your W-2 wages on line 8a and 8b of Schedule SE to ensure proper calculation.

5. Missing the Optional Methods

Farm and nonfarm optional methods in Part II can sometimes reduce your tax or increase your Social Security credits. Many eligible taxpayers never explore these options. How to avoid: If you had low earnings or a loss, review Part II instructions to see if optional methods would benefit you.

6. Incorrect Community Income Allocation

In community property states, self-employment income may need special handling, but many couples either split income incorrectly or fail to document the allocation properly. How to avoid: Review IRS Publication 555 if you live in a community property state and follow the specific instructions for your situation.

What Happens After You File

Processing

The IRS processes Schedule SE along with your Form 1040. Generally, 2020 paper returns took 6-8 weeks to process, while electronic returns were processed within 21 days, though COVID-19 caused significant delays.

Payment

Self-employment tax is due with your income tax return. If you owe a substantial amount, you should make quarterly estimated tax payments during the year to avoid underpayment penalties.

Social Security Credit

Information from your Schedule SE is transmitted to the Social Security Administration, which posts earnings to your Social Security record. These earnings determine your future retirement, disability, and survivor benefits. You can verify your earnings record by creating an account at SSA.gov.

Notices and Corrections

If the IRS finds an error in your Schedule SE calculation, you'll receive a notice (such as CP52) explaining the change and any additional tax owed or refund due. Mathematical errors are typically corrected automatically, with the IRS sending you an explanation.

Audit Considerations

While Schedule SE itself is less commonly audited than the underlying business returns (Schedule C or F), the IRS may question your self-employment tax calculation if your business income appears inconsistent or if you claim exemptions. Keep documentation of all business income and expenses for at least three years.

Deferral Repayment (2020 Specific)

If you elected to defer self-employment tax payments using Part III, remember that 50% of the deferred amount was due by December 31, 2021, and the remaining 50% by December 31, 2022. IRS.gov

FAQs

Q1: Do I owe self-employment tax if I'm already receiving Social Security benefits?

Yes. Self-employment tax applies regardless of your age or whether you're receiving Social Security or Medicare benefits. However, your Social Security benefits might be reduced if you haven't reached full retirement age and your earnings exceed certain thresholds.

Q2: Can I deduct my self-employment tax payment?

Partially. You can deduct one-half (50%) of your self-employment tax when calculating your adjusted gross income on Schedule 1 (Form 1040), line 15. This deduction reduces your income tax, though not your self-employment tax itself.

Q3: What if I had both W-2 wages and self-employment income in 2020?

You must report both, but your self-employment income may be subject to reduced Social Security tax if your combined wages and self-employment income exceed $137,700. Enter your W-2 wages on Schedule SE, lines 8a and 8b, and the form will calculate the proper amount.

Q4: Do I need to file Schedule SE if my business lost money?

Generally no, if your business had a net loss. However, if you had other self-employment income that totals $400 or more, or if you want to use optional methods in Part II that might benefit you, you should still file.

Q5: What are the "optional methods" and when should I use them?

The nonfarm optional method (line 17) and farm optional method (line 15) let you report a minimum amount of self-employment income even if you had low earnings or a loss. This can help you qualify for Social Security credits or certain tax credits like the Earned Income Credit. You can use these methods if your net profits were below certain thresholds ($6,107 for 2020).

Q6: I'm a minister—do I have to pay self-employment tax?

Generally yes, unless you filed Form 4361 and received IRS approval for exemption. Ministers typically report their ministerial income on Schedule SE, line 2, including housing allowances and utilities, even though these amounts may be excluded from income tax.

Q7: How do partnerships work with Schedule SE?

If you're a general partner, you must include your distributive share of partnership income (from Schedule K-1, box 14, code A) on Schedule SE. Limited partners only include guaranteed payments for services rendered. Each partner files their own Schedule SE; partnerships don't file Schedule SE.

Final Note

Schedule SE is an essential form for self-employed individuals that ensures you pay the Social Security and Medicare taxes necessary to build your benefits while funding these important programs. While the form may seem complex, taking time to understand it helps you file accurately and avoid penalties. For specific situations not covered here, consult IRS Publication 334 (Tax Guide for Small Business) or Publication 225 (Farmer's Tax Guide), or seek assistance from a qualified tax professional.

Sources

Sources: All information derived from official IRS publications and forms available at IRS.gov, including the 2020 Instructions for Schedule SE and related tax guidance materials.