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THE SCHEDULE SE FORM:
Understanding Self-Employment Tax
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There's a tax form for just about everything
Remember the phrase, "there's an app for that," Apple's ad campaign in the mid-2000s that was talking about the explosion in different kinds of apps happening at the time?
One of the great things about the US economy is that it allows for so many different ways to earn an income. For each one, "there's a tax form for that."
Over 60 million people in the US do freelance work, and one of the major self-employment tax forms they all need to fill out each year is the IRS Schedule SE.
Let's be real, the IRS isn't known for making tax forms easy to understand, so here's everything you'll need to know when it comes time for you to use the dedicated tax form for people who are self-employed, the Schedule SE.
Key Takeaways:
- Schedule SE is for people who earn a living through self-employment or freelancing
- Self-employed individuals need the pay 15.3% self-employment tax
- You’ll need to calculate your self-employment tax based on net earnings
Table of contents
What is this self-employed tax form for?...Read more
How much is the tax for freelancers?...Read more
How do I calculate what I owe on the Schedule SE tax form?...Read more
Do you even have to pay self-employment tax?...Read more
Instructions for Schedule SE filing...Read more
Simplifying self-employed tax forms...Read more
How can I pay my Schedule SE taxes?...Read more
What is this self-employed tax form for?
The SE part of the name stands for self-employment tax, meaning this form is for people who make a living working for themselves and freelancing and is one of the tax forms for self-employed.
This is not to be confused with the 1040 Schedule C income tax form that every small business owner should know they have to file.
For those of you who are into history, in 1954 the US Congress passed the Self-employment Contributions Act, or SECA. The idea was that people who work for themselves should have the same right to receive Social Security and Medicare benefits when they retire or get injured.
SECA takes taxes from freelancers who are working, in order to fund Social Security and Medicare for freelancers who are no longer working, or who can't work anymore.
How much is the tax for freelancers?
On top of income tax, the SECA tax is 15.3% of a self-employed individual's net earnings, or the total amount they bring in.
So if you were in an employer-employee situation, you would pay half of that (7.65%), and the company you work for would pay the other half.
15.3% is a significant chunk of your income, but there is some good news. The IRS is not without a heart when it comes to people who are working for themselves and don't have an employer to rely on.
If you're self-employed, and you're paying the entire 15.3%, you can usually deduct half of that payment from the taxes you pay!
How do I calculate what I owe on the Schedule SE tax form?
So far, the numbers are simple, right? Here are a couple more things you might want to keep in mind when you're filling out this tax form, also called the Schedule SE:
- Social Security tax is levied on the total profits from your business, right? But the new cap for 2022 is $147,000. If you're fortunate enough to earn this much, you can stop paying Social Security tax.
- Not the case with that 2.9% Medicare tax. It gets applied to your income no matter how much you make.
- Get Form 1040
- Calculate your net earnings: Gross Business Income - Total Business Expenses = Net Earnings
- Multiply your net earnings by 15.3% (self-employment tax rate)
- As an adjustment, report half of your self-employment tax
Do you even have to pay self-employment tax?
There are exceptions, but for the most part, yes. If the IRS can classify you as a sole proprietor, and you make more than $400 in business income during the tax year, you're going to have to pay estimated tax on that.
But first, you'll need to know how to report that income on the Schedule SE (also known as the form 1040 Schedule SE, the form 1040 Self-Employed and the IRS Schedule SE) – which is why you're here.
Whatever you call it, this is one of the main forms you'll need to fill out if you are:
- A sole proprietor (someone who receives all the income their business generates)
- An independent contractor, or someone offering specialized services as a nonemployee
- Someone who owns a limited liability company, or LLC
- A partner who owns a business together with someone else
Instructions for Schedule SE filing
Does it take some time to follow Schedule SE instructions to the end? Yes, but they're actually not that complicated.
How many times have you heard friends and relatives offer up the cliched complaint about how difficult it is to figure out how to fill out tax forms correctly? It's virtually a rite of passage for us Americans.
Next time someone complains, tell them to check the IRS' website. It's full of tax forms for self employed and instructions for Schedule SE. The instructions there are pretty detailed and straightforward – usually.
I think there should be more padding, or a color border, around the tax form infographics. Their white background makes the body text of the web page tough to discern.
Sometimes the language can be difficult to grasp, if you're not a tax expert: "Recapture amounts under sections 179 and 280F that you included in gross income because the business use of the property dropped to 50% or less. Don’t include amounts you recaptured on the disposition of property."
But many of the sections on the Schedule SE tax form are for people in very specific circumstances, so they don't apply to most of us. You're also going to see lines like "Net profit or (loss) from Schedule C, line 31" that are simply self-explanatory and written directly on the form.
The IRS Schedule SE is a tool in the end, and one that the federal government wants you to be able to use, so that you can pay the taxes that keep public programmes up and running for every American.
The self-employed tax form is there to help you figure out exactly how much you owe in self-employment taxes, and yet it can be difficult to know what you need to fill out on the Schedule SE form, and what you don't for 1099 tax.
Simplifying self-employed tax forms
The IRS, try as it might, isn't exactly known for simplicity, and it can always improve on its instructions. Check out the barebones guide below on how to fill out Schedule SE, so you don't lose your patience or your money.
FYI, if you're self-employed or an independent contractor, or you received any 1099 income during the tax year, you'll need to fill out the Form 1040 first. This helps you get a figure for your net taxable income. The 1040 SE form is dependent on that number.
- Enter your profit or (perish the thought) your loss on Line 2. You can get this from your Schedule C
- On Line 3, add all the lines above it together
- Line 4 is where you do the math to know what you owe in taxes. Just multiply Line 3 by .9235, or 92.35% to know how much you'll owe in taxes
- The next few lines, 5a-8d, are a handful of income types that not a lot of people have, and you probably won't need to worry about.
- Lines 10 and Line 11 are probably the most important on your self-employment tax form, because this is where you calculate some of the most significant parts of the payment you'll have to make: Social Security and Medicare
- Line 12 is where you enter your total self-employment tax, which you get by adding lines 10 and 11 together
- Another very important part of your self-employed tax form is Line 13. It's where you deduct half of your self-employment tax from what you owe. Multiply line 12 by 50%, or .50, then enter the result here
How can I pay my Schedule SE taxes?
Filing your taxes is the hard part of the process. Paying your taxes, you may not be surprised to learn, is the easy part. The IRS has a payment system set up on its website.
Before you get to that point, there are some things to know about making the payment deadline and putting your mind at ease knowing you didn't overpay.
The room for error is biggest when you file your taxes yourself. A tax professional at a traditional brick-and-mortar tax firm can help remove that uncertainty by calculating your taxes for you and filing them on your behalf. In most cases, this is the most expensive option but you’ll leave with completed self employment tax forms among other tax forms. You can also use a self-employment tax calculator that can do the math for you for free. But you'll still have to do the filing by yourself.
A subscription to one of the tax filing apps that are on the market costs less, but you still need to keep track of all your expenses on your own and be careful not to miss a possible deduction.
FlyFin is the No. 1 A.I.-driven tax machine for freelancers, analyzing your business expenses automatically to find every possible deduction, so you never overpay on self-employment tax. It's backed by a team of tax professionals who are there for you, to answer questions in real time and file your taxes when the time comes.
What’s FlyFin?
FlyFin caters to the tax needs of freelancers, gig workers, independent contractors and sole proprietors.
But anyone can file taxes through FlyFin! FlyFin tracks all your business expenses automatically using A.I. technology.
Then, our CPA team files a guaranteed 100% accurate tax return for you – to save you a couple thousand dollars and a ton of time on your taxes.
In addition, you can download the FlyFin app and have your taxes filed in less than fifteen minutes, saving time and money.
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