Self-Employment Tax

Schedule SE & 1040 Line 58

The Self-Employment Tax is how an independent contractor pays Social Security and Medicare payroll taxes. Normally, the employer and employee split the cost of these payroll taxes, each paying 7.65% of eligible wages. An independent contractor is both the employer and the employee, so a self-employed person pays both halves, or 15.3% total. The tax is composed of a Social Security tax of 12.4% on the first $87,900 of wages, and a Medicare tax of 2.9% on all wages.

The Self-Employment Tax is imposed on net profit from a business, farm, or partnership. If your Schedule C net profit (Form 1040, line 12) is $400 or more, you must calculate your Self-Employment Tax on Schedule SE (PDF). You must also calculate Self-Employment Tax if you are a church employee and had W-2 wages of more than $108.28. Clergy, ministers, and members of religious orders must also prepare Schedule SE to figure the tax on the wages reported on their W-2.

There are two Self-Employment Tax calculations. One is the short method, which is calculated on page one of Schedule SE. The other is the long method, which is calculated on page two of Schedule SE.

Short Method

The short method is the easiest to figure out your self-employment tax. The short method is figured on Schedule SE, page 1. You take your self-employment income from farming (line 1) and from business (line 2), add them together (line 3), reduce them by multiplying by 0.9235 (line 4), and multiplying line 4 by the appropriate percentage amount (line 5).