Why do I pay both employer and employee portions?

As a self-employed person, you are both the employer and employee. Employees pay 7.65% and employers pay 7.65%, but self-employed individuals pay both halves. The deduction for half the SE tax compensates for this.

Does self-employment tax count toward my Social Security benefits?

Yes. Paying self-employment tax earns you Social Security credits, which count toward your eligibility for Social Security retirement benefits, disability benefits, and Medicare.

Can I avoid self-employment tax by forming an LLC?

A single-member LLC is disregarded for tax purposes and still pays SE tax. However, electing S-corporation status for your LLC can potentially reduce SE tax by paying yourself a reasonable salary and taking remaining profits as distributions.

Is rental income subject to self-employment tax?

Generally no. Rental income reported on Schedule E is passive income and not subject to SE tax. However, if you provide substantial services to tenants (like a hotel), it may be classified as self-employment income.

Business

Schedule SE: Self-Employment Tax

Calculates Social Security and Medicare taxes owed by self-employed individuals.

Download Schedule SE PDF About on IRS.gov Instructions PDF

Overview

Schedule SE, Self-Employment Tax, is used to calculate the Social Security and Medicare taxes owed on your net self-employment earnings. Unlike employees who split these taxes with their employer, self-employed individuals must pay the full amount — both the employer and employee portions.

The self-employment tax rate is 15.3%, which consists of 12.4% for Social Security (on earnings up to $168,600 for 2024) and 2.9% for Medicare (on all net earnings). An additional 0.9% Medicare surtax applies to earnings above $200,000 for single filers ($250,000 for married filing jointly).

The good news is that you can deduct the employer-equivalent portion (half) of your self-employment tax as an above-the-line deduction on Schedule 1 of Form 1040. This reduces your adjusted gross income and, consequently, your income tax liability.

Who Files This Form?

You must file Schedule SE if your net self-employment earnings are $400 or more during the tax year. Self-employment income includes net profit from Schedule C (sole proprietorship), your distributive share of partnership income from Schedule K-1, and certain other types of self-employment income.

Church employees with income of $108.28 or more must also file Schedule SE. If you had multiple sources of self-employment income, combine them all on Schedule SE. Note that rental income is generally not considered self-employment income unless you are a real estate professional providing substantial services.

Key Fields

Line 2: Net farm profit or loss

Net earnings from farming activities reported on Schedule F.

Line 3: Net nonfarm profit or loss

Net earnings from Schedule C plus any partnership self-employment income from Schedule K-1.

Line 4a: Combined net earnings

The total of all self-employment income from Lines 2 and 3.

Line 4b: 92.35% multiplier

Your net earnings are multiplied by 92.35% (0.9235) before calculating SE tax. This approximates the deduction employees get for the employer portion.

Line 10: Social Security tax

12.4% of net earnings up to the Social Security wage base ($168,600 for 2024), reduced by any Social Security wages from W-2 employment.

Line 11: Medicare tax

2.9% of all net earnings with no cap. Additional 0.9% Medicare surtax applies above $200,000 (single) or $250,000 (married filing jointly).

Line 12: Total self-employment tax

The combined Social Security and Medicare tax, transferred to Schedule 2, Line 4 of Form 1040.

Line 13: Deductible part of SE tax

Half of the SE tax (the employer-equivalent portion), deducted on Schedule 1, Line 15.

Filing Deadlines

Due Date

April 15

With Extension

October 15

Late Filing Penalty

Filed with Form 1040; subject to the same failure-to-file and failure-to-pay penalties.

Step-by-Step Instructions

1
Complete Schedule C to determine your net profit from self-employment.
2
Enter your net nonfarm self-employment income on Schedule SE, Line 3.
3
Multiply your combined net earnings by 92.35% on Line 4b.
4
Calculate the Social Security portion: 12.4% of Line 4b, up to the wage base limit (reduced by any W-2 Social Security wages).
5
Calculate the Medicare portion: 2.9% of all net earnings on Line 4b.
6
Add the Social Security and Medicare portions for your total SE tax.
7
Enter the total on Schedule 2, Line 4 of Form 1040.
8
Deduct half of the SE tax on Schedule 1, Line 15 as an above-the-line deduction.

Common Mistakes to Avoid

Not filing Schedule SE for small amounts of self-employment income

If your net self-employment earnings are $400 or more, you must file Schedule SE. Even if you owe no income tax, you still owe self-employment tax.

Forgetting to deduct half of SE tax

The employer-equivalent portion (half of your SE tax) is deductible on Schedule 1, Line 15. This reduces your AGI and income tax liability.

Not accounting for W-2 wages in the Social Security calculation

If you also have W-2 employment, your Social Security wages reduce the amount of self-employment income subject to the 12.4% Social Security tax.

Missing the Additional Medicare Tax

If your combined self-employment and wage income exceeds $200,000 (single) or $250,000 (married filing jointly), you owe an additional 0.9% Medicare tax on the excess.

Frequently Asked Questions

The total rate is 15.3% — 12.4% for Social Security (on earnings up to $168,600 in 2024) and 2.9% for Medicare (on all earnings). You can deduct half of the SE tax on your income tax return.

Related Forms

Schedule C

Profit or Loss from Business (Sole Proprietorship)

Form 1040

U.S. Individual Income Tax Return

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