| Forms to use | |
Schedule SE Social Security Self-Employment Tax
Schedule SE Long Social Security Self-Employment Tax |
|
| How often | |
Quarterly deposit with
IRS 1040ES.
Annual reporting requirement. Partnership should include Schedule SE with their 1040 personal returns.
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|
| Tax rate | |
There are two parts to this tax:
| Social security | 12.4% (.124) of the first $106,800
of net income from your sole proprietorship |
| Medicare | 2.9% (.029) of ALL net income |
| Total | 15.3% |
If you are used to only 7.65% payroll deductions, self-employment taxes seem high. However, employers have to match employee deductions. Therefore the REAL cost for regular employees is the same as what self-employed people pay. |
|
| Please note | |
- The $106,800 limit is per person. You cannot use your spouse' payroll deductions to offset your social security self-employment tax.
- Social security self-employment tax is NOT charged on non-business income (interest or dividends from your personal investments)
- Social security self-employment tax is NOT charged on rental or royalty income.
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|
| Recalculate quarterly | |
Because your first year's income will be sporadic, you should re-calculate your social security self-employment tax each quarter. |
|
Another job?
Use Long Sch SE | |
If you also earned regular wages (or tips) that were reported on a W-2 form, AND the
total wages plus your business' net income exceeded $106,800, you must complete Part I of
the Long Schedule SE so that you do not pay too much social security tax.
This is because social security taxes are only paid on the first $106,800 of your salary plus
business net income.
Medicare is paid on all net business income, regardless of your salary from another job.
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|
| How to complete Sch. SE | |
| Line | What to enter |
| 1 | Leave blank (for farms only)
| | 2 | Calculate your business' net income.
Do NOT include these items as expenses:
- Any money that you took from the business as a draw or as "salary"
- Social security self-employment tax
- Health insurance premiums
- Tax deferrals, such as contributions to pensions, profit sharing, etc.
- Personal tax exemptions or standard exemptions
- Carryover losses, gains, etc.
- If you are completing this form to determine your estimated quarterly taxes, include an
estimate of your business net income for the remainder of the year.
- Add your spouse's income and any other sources of income.
|
| 3 | Same as line 2 |
| 4 | Multiply line 3 by .9235. This adjustment is made because
½ of social security is tax deductible. |
| 5 |
Multiply line 4 by .153 (.153= .124 social security + .029 Medicare).
If line 4 is more than $106,800 (the cut-off for this year), calculate (106,800 x .129) + line 4 x .029.
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If you are completing this to determine quarterly taxes: Enter your results on IRS 1040ES, line 11.
If you are completing final year-end tax returns: Enter your results (line 5) on IRS Form 1040 line 57 and ½ of the amount from line 5 on Form 1040, line 30. |
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| Net income under $1,600? Long Sch. SE
| |
If your net income was less than $1,600 and also less than 2/3 of your gross income,
there is an alternative method of calculating social security self-employment tax. It will
probably increase your taxes, but it will also increase the social security benefits
you are entitled to. The worksheet is on the back of the Schedule SE (Part II). |
|
| Other employees? | |
Social security taxes for employees (i.e. non-owners) must be paid using different forms.
See
IRS 941,
EFTPS payment for federal employment taxes and your state quarterly employer forms. |
|
| New tax rate | |
The social security self-employment tax maximum wage limit changes annually. Call the IRS each January for the new rate and wage cap. |
|
| To pay | |
Social security self-employment tax should be paid quarterly with
1040ES.
Schedule SE should be completed annually and mailed with each taxpayer's 1040 annual return. |
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| Questions? | |
Call the IRS information hotline (800) 829-4933. For forms, call
(800) 829-3676 or obtain them online at http://www.irs.gov/formspubs/index.html.
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