Chapter 45

Figuring Self-Employment Tax

Self-employment tax provides funds for Social Security and Medicare benefits. The self-employment tax is calculated on Schedule SE. You are required to prepare Schedule SE if you have self-employment net earnings of $400 or more in 2012, but you will not incur the tax unless your net self-employment earnings exceed $433.13. The tax is added to your income tax liability. When preparing your estimated tax liability, you must also include an estimate of self-employment tax; see Chapter 27.

On Schedule SE, self-employment income is reduced by a deduction reflected in the decimal of .9235 listed on the form. You also deduct the employer-equivalent portion of the self-employment tax on Line 27 of Form 1040.

For 2012, the self-employment tax of 13.3% consists of the following two rates: 10.4% for Social Security and 2.9% for Medicare. After multiplying the net earnings by .9235, the combined 13.3% rate applies to a taxable earnings base of $110,100 or less; the 2.9% rate applies to all taxable earnings exceeding $110,100.

You are required to pay self-employment tax on self-employment income even after you retire and receive Social Security benefits.

45.1 What Is Self-Employment Income?

45.2 Partners Pay Self-Employment Tax

45.3 Schedule SE

45.4 How Wages Affect Self-Employment Tax

45.5 Optional Method If 2012 Was a Low-Income or Loss Year

45.6 Self-Employment Tax Rules for Certain Positions