Schedule SE (Self-Employment Tax) is an essential IRS form for self-employed taxpayers who need to calculate and pay Social Security and Medicare taxes on their earnings. Unlike traditional employees, where employers automatically withhold and match these taxes, self-employed individuals must handle both the employee and employer portions themselves through Schedule SE. This tax supports Social Security benefits such as retirement and disability, and Medicare health coverage primarily for seniors.
Who Must File Schedule SE?
If your net earnings from self-employment are $400 or more in 2025, you are generally required to file Schedule SE attached to your Form 1040. This applies broadly to freelancers, independent contractors, sole proprietors, and partners in partnerships. It also applies to certain church employees earning $108.28 or more from qualifying organizations exempt from employer Social Security and Medicare taxes.
Even if you have a traditional W-2 job, any side income that meets the $400 net earnings threshold must be reported on Schedule SE.
How Self-Employment Tax is Calculated Using Schedule SE
Your net earnings — total business income minus deductible business expenses reported typically on Schedule C or through Schedule K-1 for partnerships — form the basis for this tax.
The self-employment tax rate is 15.3%, split into:
- 12.4% for Social Security tax: Applied only to earnings up to the 2025 limit of $168,600. Income above this cap is not subject to Social Security tax.
- 2.9% for Medicare tax: Applies to all net self-employment earnings, with no upper limit.
An additional 0.9% Medicare surtax may apply to income exceeding $200,000 (single filers) or $250,000 (married filing jointly), but this is calculated separately from Schedule SE.
One beneficial aspect is that you can deduct half of your self-employment tax from your gross income on your Form 1040, which lowers your adjusted gross income (AGI).
Filing and Reporting
You use Schedule SE along with your Form 1040. If you have a business, report gross receipts and expenses on Schedule C. Partnerships report income through Schedule K-1, which feeds into Schedule SE.
For estimated tax purposes, because no employer withholds taxes for self-employed income, you should submit quarterly estimated payments using Form 1040-ES to avoid penalties.
Real-World Examples
- Freelancer: A graphic designer earning $15,000 with $2,000 in expenses will pay self-employment tax on $13,000.
- Gig Worker: A rideshare driver with $8,000 net earnings files Schedule SE.
- Consultant: An independent business consultant earning $100,000 reports self-employment tax on full net earnings, paying both Social Security and Medicare taxes.
Key Tips for Managing Self-Employment Tax
- Pay estimated taxes quarterly to avoid IRS penalties.
- Keep detailed records of income and all business expenses to maximize deductions and reduce net earnings.
- Set aside 25-35% of income for taxes to cover both income and self-employment taxes.
- Consider business structure changes, such as forming an S corporation, to potentially reduce self-employment tax liability with professional advice.
- Understand and claim all eligible business deductions, including health insurance, retirement contributions, travel, and office expenses.
Common Mistakes to Avoid
- Not paying quarterly estimated taxes
- Failing to track expenses properly
- Confusing gross income with net earnings
- Overlooking the Social Security income cap
- Forgetting the deduction for half of the self-employment tax
Frequently Asked Questions
Q: Do I owe self-employment tax if I make less than $400?
A: Typically no, unless the IRS specifically requires reporting small amounts of self-employment income.
Q: Do retirement plan contributions reduce self-employment tax?
A: They reduce income tax, but not self-employment tax since the tax is calculated before deducting these contributions.
Q: Can filing as an S corporation avoid self-employment tax?
A: Potentially, as owners pay self-employment tax only on their reasonable salary, not distributions. Consult a tax professional.
Q: How do W-2 earnings affect self-employment tax?
A: Your combined income determines if you’ve reached the Social Security tax limit to avoid overpayment.
Additional Resources
For detailed official guidance, visit the IRS page on Schedule SE (Form 1040). For managing estimated tax payments, see our detailed Form 1040-ES Guide.
Understanding how Schedule SE works is key for self-employed individuals to meet tax obligations and optimize their tax situation effectively in 2025.