Calculate Self Employment Tax in the U.S.

The Self Employment Tax is a Social Security and Medicare tax on the net earnings of self-employed individuals in the United States. The self-employed are responsible for paying the entire tax, as they essentially serve as both employer and employee. The Internal Revenue Service has detailed instructions on how to calculate Self Employment Tax.

Steps

Determining If You Are Responsible for Filing Self-Employment Tax

  1. Understand who has to file self-employment tax. Individuals are generally required to do so if they meet the following criteria: [1]
    • You carry on a trade or business as a sole proprietor or independent contractor.
    • You are part of a partnership that carries on a trade or business.
    • You are otherwise in business for yourself.
  2. Calculate your net profit from your business. You need to do this by subtracting expenses from your profit.[1]
    • Calculate your net expenses by adding up all of your expenses from the past tax year relating to your business.
    • Add up all profits from your business from the past year.
    • Subtract your business expenses from your profits. This figure is your net profit.
    • For example, if you made $1000.00 in profits and had $200 dollars in expenses, your net profit would be $800.00
  3. Determine if you have to file self-employment tax. The IRS has income guidelines regarding self-employment tax. [1]
    • Self-employed individuals with a net profit of $400 or more must file self-employment tax.
    • If your net profit was less than $400 you do not need to file self-employment tax.
    • If you do need to file self-employment tax, you will need to use Form 1040 Schedule SE to calculate your self employment tax.
  4. Use Form 1040 Schedule SE to calculate self-employment tax. There is a short form and a long form on Schedule SE. Use the flow chart on the front to determine which one you will use.
    • Follow the instructions step by step on the form to calculate the tax.[2]
    • Use a calculator to do your math. Trying to do this by hand can be time consuming and unnecessarily difficult.
    • To fill out this form you will need Schedule C or Schedule C-EZ to be completely filled out, receipts and documentation of your expenses and losses, and any other income information.

Calculating Self-Employment Tax Using Short Schedule SE

  1. Complete the first portion to determine net profit. Follow these steps: [2]
    • On line 1a, enter net farm profit or loss from Schedule F, line 34. Income from farm partnerships can be found on Schedule K-1, box 14 Code a. If you did not have farm profit, enter 0.
    • For line 1b, enter any social security retirement or disability benefits from the Conservation Reserve payments section on Schedule F, line 4b or Schedule K-1, box Z.
    • For line 2, enter net profit or loss from Schedule C (line 41), Schedule C-EZ (line 3), or Schedule K-1 (box 14, code a and box 9, code J-1).
    • Combine lines 1a, 1b, and 2 and enter this value in line 3 of the form. For example, if you had zero farm income (line 1a), zero social security retirement or disability benefits (line 1b), and $800 profit (line 2), you would enter $800.00 for line 3.
  2. Multiply the figure in line 3 by 92.35%. To do this simply multiply the amount from line 3 by .9235.[2]
    • Enter this figure on line 4.
    • For example, if you had $800.00 profit from self-employment, you would multiply 800 by .9235. 800 x .9235 = 738.80. You would enter 738.80 on line 4 of the Short Schedule SE form.
    • If this amount is less than $400 you do not need to pay self-employment tax.
    • If this amount is $400 or more, proceed to line 5 of Short Schedule SE.
    • In our example, $738.80 is greater than $400. You would need to proceed to line 5.
  3. Fill out line 5 of the Short Schedule SE form. To do do this calculation look closely at the figure you entered on line 4.[2]
    • If this amount is $117,000 or less, multiply line 4 by .153 and enter this figure in line 5.
    • If the amount you entered in line 4 is more than $117,000, you would need to multiply line 4 by .029 then add $14,508 to the result. You would then record this figure on line 5.
    • For example, if you had $738.80 on line 4, you would multiply it by .153. 738.80 x .153 = 113.04. You would enter $113.04 on line 5 of the form.
  4. Complete line 6 of the Short Schedule SE form. You will need the information you entered on line 5 to complete this.[2]
    • Multiply line 5 by .50.
    • This figure is what you should enter on line 6. This is the deduction for self-employment tax.
    • For example, if you had line $113.04 on line 5 of the form, you would multiply this figure by .50. 113.04 x .50 = 56.52. You would enter $56.52 on line 6.

Calculating Self-Employment Tax Using Long Schedule SE

  1. Complete lines 1a, 1b, and 2 on Long Schedule SE. These are the same as in Short Schedule SE (See Part II, Step 1).[2]
    • Enter the sum of 1a, 1b, and 2 on line 3 of Long Schedule SE.
    • For example your farm income was $0 (line 1a), you had no earnings from social security retirement or disability (line 1a), and your business had a profit of $800 (line 2).
    • $0 + $0 + $800 = $800.
    • You would enter $800 on line 3 in this example.
  2. Complete line 4, parts a, b, and c. You will need the information from 3 to do this. The total from line 4c will tell you if you have to pay self-employment tax or not.[2]
    • For 4a, if the figure you entered in line 3 was more than $0, multiply this figure by .9235.
    • For example, if you entered $800 in line 3, you would multiply this by .9235 for line 4a. $800 x .9235 = 738.80. You would enter $738.80 for line 4a.
    • Fill out 4b using the optional methods on the bottom of the page only if you had farm income. Otherwise enter $0.
    • For 4c, add lines 4a and 4b.
    • For example if you had entered $738.80 in line 4a, and $0 in line 4b, your total for line 4c would be $738.80.
    • If line 4c is $400 or less, you don't need to file self-employment tax. If line 4c is greater than $400 you will need to proceed with the rest of Long Schedule SE.
  3. Complete section 5 for church related income. If you do not have church related income, enter 0 for both lines 5a and 5b.[2]
    • Enter church related income on line 5a.
    • Multiply line 5a by .9235.
    • Enter this amount in line 5b. If the amount is less than $100 enter $0.
  4. Complete line 6. This combines earnings from self-employed income and church related income.
    • To complete this step, add together the values from 4c and 5b.
    • For example if you entered $738.80 on line for 4c, and $0 on line 5b, you would enter $738.80 on line 6.
    • Make sure you have done your calculations correctly before moving on.
  5. Fill out section 8 and 9 of the Long Schedule SE form. You will need any information from your W-2 forms for this line, as well as information on tips not reported to social security and any other wages subject to social security tax.[2]
    • For line 8a, enter social security wages and tips (boxes 3 and 7 on your W-2 forms).
    • For line 8b, enter any tips not reported to social security.
    • For line 8c, enter any wages subject to social security tax.
    • For line 8d, add line 8a, 8b, and 8c. Enter this value for line 8d.
    • Subtract line 8d from line 7. The value for line 7 is $117,000. Input this value on line 9.
  6. Complete line 10 of the Long Schedule SE form. You will need to look at line 6 and line 9 of this form to do this.[2]
    • Line 10 states to multiply the smaller of these two figures by .124: Line 6 or Line 9.
    • Multiply line 6 or line 9 by .124.
    • Let's assume that line 6 is the smaller of the two. In our example, line 6 was $738.80.
    • $738.80 x .124 = 91.61. You would enter $91.61 for line 10.
  7. Complete line 11 of the Long Schedule SE form. You will need the value of line 6 for this step.[2]
    • You will need to multiply the value of line 6 by .029.
    • For example, if line 6 were $738.80 you would multiply that value by .029. 738.80 x .029 = 21.43.
    • Therefore, in this example, you would enter $21.43 as the value for line 11.
  8. Fill in line 12 on the form. To do this you would simply add lines 10 and 11 together.[2]
    • For example, line 10 was $91.61.
    • Line 11 in the example was $21.43.
    • $91.61 + $21.43 = 113.04.
    • Therefore, in this example you would enter $113.04 for line 12.
  9. Complete line 13 of the Long Schedule SE Form. This is the final step and here you would calculate the self-income tax deduction.[2]
    • Multiply line 12 by .50 to calculate this value.
    • For example, the value for line 12 is $113.04. 113.04 * .50 = $56.52.
    • You would then put in $56.52 for line 13.
    • You have now calculated self-income tax deduction.

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Sources and Citations

  1. ↑ 1.0 1.1 1.2 http://www.irs.gov/Individuals/Self-Employed
  2. ↑ 2.00 2.01 2.02 2.03 2.04 2.05 2.06 2.07 2.08 2.09 2.10 2.11 2.12 http://www.irs.gov/pub/irs-pdf/f1040sse.pdf

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